US trade deficit with Vietnam balloons to record high, as Trump administration launches currency probe

US trade deficit with Vietnam balloons to record high, as Trump administration launches currency probe

Vietnam’s trade surplus with the US reached record levels in August as firms moved supply chains from China to avoid trade war tariffs. Data comes just days after Washington announced a probe into alleged currency manipulation by Vietnam, which could result in import tariffs

The United States’ trade deficit with Vietnam surged to an all-time high in August, data released this week showed, just days after the Trump administration announced an investigation that could result in tariffs being slapped on the Southeast Asian nation.
The US trade in goods deficit with Vietnam rose by 11 per cent between July and August to US$7.6 billion, and 38.9 per cent increase from a year earlier, US government data showed.
The announcement followed the commencement of two separate US trade probes against Vietnam for the use of timber that has been allegedly illegally harvested or traded, and currency manipulation.
The Office of the US Trade Representative (USTR) is using the same mechanism – Section 301 of the 1974 Trade Act – that it used to launch billions of dollars of trade war tariffs on Chinese imports to the US in 2018.

The USTR did not give a timeline for the investigation, but its probe against China took seven months. On Thursday, the agency published a note requesting written responses to the investigation with a deadline of November 12, meaning there will be no movement this side of November’s US election.
However, if it is determined that Vietnam undervalued its currency and in the process hurt American business, tariffs could be applied.
“Everybody is concerned, especially investors in Vietnam who moved their factories from China,” said Ernie Koh, director of Singapore furniture manufacturer Koda, which has manufacturing facilities in Vietnam.
“You move to escape a problem and then have the same problem in another place. But I think the Vietnamese government will react in some way to correct the dong.”

Vietnam’s trade surplus with the US has crept up as it became one of the most popular destinations for manufacturing companies moving production out of China to avoid trade war tariffs.
In August, Vietnam’s exports to the US were 125 per cent higher than in August 2017, before the trade war began.
Over that period, its currency has not gained material value, even as it brought in an increasing level of US dollars each month.
A currency manipulation tracker from the Council on Foreign Relations showed that Vietnam was the worst offender across three criteria identified by the US Department of the Treasury.
These included holding an annual trade surplus of more than US$20 billion; having a current account surplus of more than 2 per cent of gross domestic product (GDP); and government intervention in forex markets to buy US dollars in six of the past 12 months, amounting to more than 2 per cent of GDP.

“They are manipulating [the currency], this swelling trade surplus should have put some additional pressure on the currency to appreciate, because the US is one of their major trading partners – that should have some discernible effect on accounts, but it hasn’t as of yet,” said John Marrett, an analyst covering the Vietnamese economy for The Economist Intelligence Unit.
In a statement announcing the timber investigation, USTR claimed “much of the timber imported by Vietnam was harvested against the laws of the source country”, accusing it of engaging in illicit forest clearing on protected lands such as wildlife sanctuaries in Cambodia, Cameroon and the Democratic Republic of Congo.
Vietnam earned about US$9 billion from wood exports in the first nine months of this year, up 12 per cent from the same period last year, according to the Vietnam Timber and Forest Product Association.
This included US$4.19 billion worth of wood products shipped to the US, a 27.4 per cent increase from a year earlier.

The association added that about 60 Chinese kitchen cabinet manufacturers had partially shifted their production line to Southeast Asia since the start of the trade war, with 25 moving to Vietnam.
“This will definitely have an impact on our business, especially for those kitchen cabinet manufacturers who export to the US, but there is nothing to worry about for non-US exporters at this stage,” said Niu Qiang from the Chinese Chamber of Commerce in Ho Chi Minh City.
The threat of tariffs has hung over Vietnam since June 2019, when US President Donald Trump said the country was the “single worst abuser of everybody”.
“A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China. So there’s a very interesting situation going on there,” Trump told Fox Business.

Accordingly, the USTR’s formal announcement at the weekend did not catch many in Vietnam by surprise, with businesses more focused on dealing with the supply chain problems caused by the coronavirus pandemic.
“Everyone here is short term-focused, looking at next week, next month, next quarter at most,” said Julien Brun, managing partner at CEL Consulting, a group that advises companies on supply chain issues.
“Budgets for 2021 are being drafted, but lots of question marks remain. Beyond this tariff story, I think everyone is waiting for the election results.”
He added that if tariffs were imposed, more firms would begin exporting to Europe. Vietnam’s free trade agreement with the European Union entered force at the end of July.

For some firms in Vietnam, the investigation had yet to register, but they said it would only add to what had been a challenging effort to relocate out of China.
Guangdong-based mattress manufacturer Steven Jiang moved production lines for his US exports to Vietnam in 2019. But while they were under construction, Washington slapped anti-dumping duties of up to 1,000 per cent on mattresses made in Vietnam.
“When the anti-dumping duties came in last year, I lost my confidence overnight,” said Jiang, who is considering leasing his factory or manufacturing other products – a dilemma made more difficult by the possibility of new tariffs.
“At this stage, I do not know what to make. It would take me about 10 years to recover my costs.” es un sitio web oficial del Gobierno Argentino