Vietnamese Prime Minister and President Trump talk about ‘manipulation of currencies’

Prime Minister Nguyen Xuan Phuc and President Trump at the White House in 2017

On December 22, Vietnamese Prime Minister Nguyen Xuan Phuc had a phone call with US President Donald Trump, affirming that the administration of Vietnam’s monetary policy is not intended to create an advantage in international trade competition.

Vietnam’s Ministry of Foreign Affairs has just informed that in a phone call on the evening of December 22, PM Phuc and Trump discussed the US Trade Representative (USTR)’s investigation on currency policy and timber materials of Vietnam under Article 301 of the Commercial Law of the US.

Previously, on December 16, the US Department of Finance issued the report “Macroeconomic policies and foreign exchange of major US trading partners,” bringing 10 economies, including China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan, Thailand, and India on the watchlist.

Vietnam, along with Switzerland, was identified by the US Treasury as “currency manipulation” under the Omnibus Competition and International Trade Act of 1988.

At the meeting with President Trump, PM Phuc affirmed that Vietnam is a developing country with limited economic potential and should administer monetary policy to control inflation and stabilize the macroeconomy, and its exchange rate management is not aimed at creating an advantage in international trade competition.

The Ministry of Foreign Affairs informed that the two sides agreed to assign the ministries and branches of Vietnam and the US to continue to cooperate and solve the problem:

In that spirit, Vietnamese ministries and branches will continue to actively cooperate with US partners, comprehensively address the concerns of the US and Vietnam, thereby maintaining trade relations stability, towards a harmonious, sustainable, and mutually beneficial trade balance.”

At the phone call, PM Phuc and President Trump agreed to assess that the Vietnam-US relationship has developed strongly in all fields after 25 years of establishing diplomatic relations, and especially in recent years.

Mr. Phuc and Mr. Trump both believe that the relationship between the two countries will continue to go into depth and stability, bringing benefits to the two peoples, in which economic and trade cooperation is the focus and driving force of the bilateral relationship.

A strong, independent, and prosperous Vietnam, playing an increasingly important role in the region, is the desire of the Vietnamese people and also in line with American interests.

Why is Vietnam being “labeled” a currency manipulator?

To be labeled a currency manipulator, countries must at least violate three criteria: Have a bilateral trade surplus of more than $20 billion with the US, foreign exchange intervention exceeds 2% of gross domestic product, and the global current account surplus exceeds 2% of GDP. Vietnam and Switzerland surpass these criteria, with foreign exchange intervention levels of 5% and 14% of GDP, respectively.

Accordingly, the US believes that a country buying a lot of foreign exchange is weakening its local currency or devaluing its currency. If a country breaks all three criteria it will be labeled “currency manipulator.” In the latest report released in December, Vietnam violated all three above criteria, so it was labeled “currency manipulator.”

The 69-page report of the US Treasury Department said that Vietnam partially interferes with the foreign exchange by devaluing the dong to gain goodwill, while Switzerland is to prevent balance-of-payments effective adjustment.

The US Chamber of Commerce on December 16 urged the US government not to impose a tax on Vietnam due to the under-valuation of the dong and said that Vietnam did not meet the three criteria of the US Department of Finance to be labeled a country currency manipulator, according to Reuters.

In an interview, the head of the US Chamber of Commerce said that any US move to impose tariffs on Vietnam before the end of December hearing would ignore the established procedures and “send a bad message to Vietnam” at the same time will damage the bilateral relationship.

Mark Sobel, a former Treasury, and International Monetary Fund (IMF) official say the tagging of currency manipulation is a “mechanical” explanation of thresholds that ignores complexity and downsizing circumstances. slightly, according to Reuters.

These include capital inflows of safe-haven investment in Swiss currency due to the pandemic and foreign investment pouring into Vietnam in 2019 due to companies avoiding US tariffs on Chinese goods.

The IMF has predicted that Vietnam’s current account surplus will fall below the 2% threshold of GDP by 2020.

On February 10, the US Trade Representative (USTR) updated the list of LDCs and developing countries in its Countervailing Law. Accordingly, Vietnam was removed from this list.

What should Vietnam do?

In the report, the US Treasury Department advises that Vietnam should urgently strengthen its monetary policy framework to facilitate greater movement in the exchange rate to reflect economic fundamentals and reduce the intervention, and allows a real effective price increase of the exchange rate. Vietnam should also increase the transparency of foreign exchange controls, interventions, and foreign currency reserves.

The US also suggested that Vietnam should remove barriers for US companies and goods imported from the US into Vietnam to reduce the bilateral trade imbalance.

Commenting on VNexpress, Mr. Truong Van Phuoc – a specialized member of the Prime Minister’s advisory group, said that in order to strip the tag of “manipulating currency,” Vietnam would need to dialogue, explain and negotiate with the US. In addition, Vietnam also needs to adjust the trade structure for many countries, increase the import of strong US products such as agricultural products, high technology, energy, and scientific and technical equipment …

Mr. Phuoc said that with the relationship between Vietnam and the US still in good development momentum, the two governments will consider based on the relationship that the leaders of the two countries have been building up for nearly 25 years.

US President Donald Trump holds a Vietnamese flag and Vietnamese Prime Minister Nguyen Xuan Phuc holds the US flag at the Vietnamese Government Office in Hanoi on February 27, 2019, before the US-North Korea Summit.

The expert also noted that the US also once labeled China a “currency manipulator” but after a year they removed it. It is not likely that the US will immediately impose taxes on Vietnamese exports after labeling Vietnam as a currency manipulator.

Accordingly, in 2019, the Trump administration labeled China as currency manipulation – for the first time since 1994 – when the two countries were negotiating a trade deal.

Later, the US dropped this accusation, but the yuan is still on the watch list of the US Treasury Department.

Previously, on December 17, Vietnamese Foreign Ministry spokesman Le Thi Thu Hang affirmed on December 17 that Vietnam “maintains a dialogue and constructive consultation with the US to handle the issues in bilateral economic and commercial relations in the direction of sustainability and harmonization of the interests of both sides.”

Vietnam attaches special importance to its economic and trade relations with the US, strictly implementing high-level commitments and trade agreements between the two countries as well as other multilateral trade commitments,” Ms. Hang added.

On the same day, the State Bank of Vietnam said it would work with US authorities to ensure a “harmonious and fair” commercial relationship, and that Vietnam values ​​its economic, stable, and sustainable trade relationship with the US.

Vietnam’s exchange rate policy for many years has been managed in the direction of curbing inflation, ensuring macro stability, and not aiming to create an unfair competitive advantage in international trade,” Vietnam stated in a document.

In the framework of a phone call on the evening of December 22, the Ministry of Foreign Affairs also added that, on the sidelines of the discussion on monetary policy management, PM Phuc congratulated President Trump on the successful development of two types of Covid-19 vaccine in record short time. President Trump affirmed the treasures of the country and people of Vietnam and wishes to visit Vietnam again in the near future.

President Trump has visited Vietnam twice since taking office. In November 2017, Mr. Trump attended the APEC Summit and visited Vietnam at the state level. By 2019, he went to Hanoi to attend the second US-North Korea Summit. (Translated)