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Case for Tariffs on Vietnam Bolstered as Treasury Applies Currency Manipulator Label

Prospects for new tariffs, quotas, or other restrictions on imports from Vietnam got a boost Dec. 16 when the Treasury Department issued a report finding that Vietnam has manipulated the value of its currency.

In October the Office of the U.S. Trade Representative launched a Section 301 investigation of Vietnam’s acts, policies, and practices related to currency valuation. USTR plans to hold a virtual hearing in this investigation Dec. 29 and is accepting post-hearing rebuttal comments no later than Jan. 7. There has been speculation that the Trump administration could act soon thereafter, or possibly even before, to declare a Section 301 violation and impose tariffs or other restrictions on imports from Vietnam.

In its semi-annual foreign exchange rate report issued Dec. 16, Treasury listed Vietnam as a currency manipulator. Treasury found that Vietnam (1) has a significant bilateral trade surplus with the U.S. (i.e., greater than $20 billion), (2) has a material current account surplus (i.e., at least three percent of the country’s gross domestic product), and (3) has engaged in persistent one-sided intervention in the foreign exchange market (i.e., conducted repeated net purchases of foreign currency that amount to at least two percent of its GDP over the year). Treasury also determined that at least part of Vietnam’s exchange rate management over the four quarters through June 2020, and particularly its foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments and gaining unfair competitive advantage in international trade.

Switzerland was named as a currency manipulator as well, for the same reasons.

As a result, Treasury states that it will commence enhanced engagement with both Vietnam and Switzerland that will include urging the development of plans with specific policy actions to address the underlying causes of currency undervaluation and external imbalances. If either country fails to adopt appropriate policies within a year, the president would be required to take one or more of the following actions: (1) denying access to Overseas Private Investment Corporation financing, (2) excluding the country from U.S. government procurement, (3) calling for heightened surveillance by the International Monetary Fund, and (4) instructing USTR to take such failure into account in assessing whether to enter into a trade agreement or initiate or participate in trade agreement negotiations. The president could waive the remedial action requirement under specified circumstances.

Further, Treasury said it will maintain China, Japan, Korea, Germany, Italy, Singapore, and Malaysia on a list of countries targeted for close scrutiny of their currency practices and is adding Taiwan, Thailand, and India to that list. Each of these countries except China met two of the three criteria listed above, while China met only one but “constitutes a disproportionate share of the overall U.S. trade deficit.”

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