On December 16, 2020, the Department of the Treasury released Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.
The Report concluded that both Vietnam and Switzerland met all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review. Treasury consequently conducted enhanced analysis of Vietnam and Switzerland in the Report and will also commence enhanced bilateral engagement with each country in accordance with the 2015 Act. This engagement will include urging the development of a plan with specific policy actions to address the underlying causes of currency undervaluation and external imbalances.
Treasury also determined that, under the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), both Vietnam and Switzerland are currency manipulators. For each country, Treasury assessed, based on a range of evidence and circumstances, that at least part of its exchange rate management over the four quarters through June 2020, and particularly foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments and, in the case of Vietnam, for gaining unfair competitive advantage in international trade as well. Consistent with the 1988 Act, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments and eliminate the unfair advantages in trade that result from their actions.
No other major U.S. trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the relevant period. Treasury urged China to improve transparency with respect to the management of its exchange rate, in particular regarding official foreign exchange intervention, and increase public understanding of the relationship between the PBOC and the foreign exchange activities of the state-owned banks, including the use of foreign exchange derivatives and activities in the offshore RMB market.
Treasury found that ten economies warrant placement on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan, Thailand, and India, the last three being added in this Report.
The report comes at a time when Vietnam is already on the Trump Administration's radar as a currency manipulator. On October 2, 2020, the U.S. Trade Representative (USTR) announced that it had initiated two separate investigations—pursuant to Section 301 of the Trade Act of 1974—with respect to Vietnam’s trade with the United States. The USTR will review Vietnam’s importation of timber that may have been illegally harvested or traded, used as inputs for its manufacturing of timber products, and subsequently exported to the United States. The agency will also review, in consultation with the Treasury Department, any practices that may have contributed to the alleged under valuation of Vietnam’s currency and thus may have impaired the competitiveness of U.S. products (by making them more expensive to foreign buyers). The USTR has requested consultations with the government of Vietnam, sought public comments on the investigations, and will hold virtual public hearings on December 28 and 29, 2020.
Section 301 investigations generally take months to complete, as the USTR reviews public comments, holds consultations with the foreign government, and reports findings and recommendations. For example, the Section 301 investigation of China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation was initiated on August 18, 2017, and the first tranche of 301 tariffs was implemented on July 6, 2018. From this history we expect that the determination on whether to take action in these cases relating to Vietnam will likely occur during the 117th Congress.
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