Trump Administration Set to Announce Vietnam Currency Probe

Date: Thursday, October 1, 2020
Source: Bloomberg

The Trump administration plans to announce an investigation into Vietnam’s currency practices, according to three people familiar with the matter.

The probe, undertaken through section 301 of the 1974 Trade Act, would come after the Departments of Commerce and Treasury in August determined Vietnam had manipulated its currency in a specific trade case involving tires, the people said. The announcement could come as soon as this week, said the people, who asked not to be identified.

“Vietnamese relevant agencies are now in contact with the U.S. side to verify this information,” Foreign Ministry spokeswoman Le Thi Thu Hang said during a briefing in Hanoi when asked about the Bloomberg News report.

Vietnam is among the U.S.’s 10 biggest trading partners. The U.S.’s goods-trade deficit with the Asian nation this year reached $34.8 billion by July, the biggest after the shortfalls with China, Mexico and Switzerland.

The Trump administration used a so-called 301 investigation against China to apply tariffs on billions of dollars worth of imports that initiated the trade war between the world’s two biggest economies.

Vietnam is one of the Southeast Asian countries “caught in the U.S.-China crossfire and Trump’s angst over trading partners’ currency manipulation,” said Linda Liu, an economist at Maybank Kim Eng Research Pte. in Singapore. The investigation “has increased the chances of the U.S. imposing tariffs on Vietnam. But the tariffs will likely be targeted and product-specific, rather than sweeping.”

This “warning shot” to Vietnam also might put other regional economies on guard, including Thailand and Malaysia, she said.

Countervailing Duties

A new federal rule published this year allows the U.S. Commerce Department to treat currency undervaluation as a factor in determining countervailing duties on a trading partner.

Vietnam’s central bank has moved to a more market-based framework of setting the currency since 2016, adjusting the dong’s reference rate on a daily basis. It allows the dong to trade within a band of 3% on either side of the reference rate, which is based on eight currencies.

Market reaction in Vietnam was subdued on the news of the U.S. probe. The benchmark VN Index of Vietnamese stocks rose 0.7% as of 9:23 a.m. local time Thursday as investors reacted to this week’s interest-rate cuts. The dong’s reference rate was set by the central bank at 23,213 per dollar Thursday, and the currency traded at 23,184 per dollar as of 10:15 a.m. in Hanoi, unchanged from Wednesday, according to data from commercial banks compiled by Bloomberg.

These types of currency investigations usually take months, so any imposition of tariffs as a result wouldn’t likely occur before the U.S. presidential election in November.

Spokespeople for the Commerce Department and the U.S. Trade Representative didn’t immediately respond to a request for comment. Treasury referred comments to them.

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