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Trade Tensions: Vietnam Manipulated Currency, Treasury Claims

In what may be one of its final acts before the Biden administration takes over, the Trump administration formally accused Vietnam of currency manipulation.

The U.S. Treasury made that disclosure on Wednesday in a semi-annual currency manipulation report. It said that the Southeast Asian nation, along with Switzerland, allegedly took actions through June to devalue their currencies against the U.S. dollar.

Those actions gave Vietnam, which has become a huge manufacturer of apparel as companies sought to expand their manufacturing base beyond China, an “unfair competitive advantage” in the international markets by making its product cheaper abroad by devaluing its currency, the dong. The U.S. is probing is whether Vietnam illegally harvests and trades timber.

The Treasury Department in May 2019 removed Switzerland and India from its currency monitoring list, but kept China, Japan, Korea, Germany, Italy, Singapore and Malaysia. The latest report added India, Taiwan and Thailand to the list as well. Despite the ongoing trade tensions, China was not labeled a currency manipulator. That’s not to say the Trump administration hasn’t tried—last year it briefly applied, then dropped, the label.

In October, the Trump administration first began a probe of the Southeast Asian country’s trade practices, levying tariffs against Vietnamese tires last month after the Commerce and Treasury Departments concluded that currency-manipulation took place.

Trump has been vocal about closing the U.S. trade gap, and Vietnam has been a focus of his administration this year. Ordinarily, Vietnam could find itself on the receiving end of sanctions via new tariffs on imports, known as countervailing duties. But even if imposed, it could take some time before new duties can go into effect, and time is running out before Trump leaves office.

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When the October Vietnam probe began, the fashion industry was quick to take notice, given how much apparel and footwear manufacturing now occurs in the country as high labor costs forced many to look beyond China for new sourcing options. Most of that shift moved to Vietnam and, to an extent, Cambodia. Most who made the shift early got the benefit when the U.S. later imposed tariffs on imports from China amid an ongoing trade war. But many fearwhat will happen next if Vietnamese imports are sanctioned, too.

The American Apparel & Footwear Association was quick to urge the government to “refrain from sowing further supply chain disruption” during the Covid-19 pandemic. And the AAFA didn’t miss a beat Wednesday following the currency manipulation designation.

AAFA Trade Policy Committee members said they’re “concerned that the [U.S. Trade Representative] will use this report and act quickly to impose preliminary tariffs as high as 25% on imports from Vietnam by the end of the week.” It noted that the USTR is scheduled to hold hearings at the end of December for both Vietnam’s currency valuation and illegal timber, and that the AAFA has requested time to testify at both hearings.

The AAFA and apparel industry have reason to be concerned over the latest development with Vietnam. According to Chris Rogers, research director at Panjiva, the supply chain research unit of S&P Glboal Market Intelligence, who spoke at a Sourcing Journal event recently, a change in administration wouldn’t mean an easy pass on trade.

“A Biden presidency could be less hostile,” Rogers said, noting that the industry shouldn’t expect any changes to trade policy. “He has talked about jobs and re-shoring [of production]. He has said he wants to sort out jobs at home before sorting out trade deals overseas.”