U.S. Opens Trade Case to Probe Vietnam Currency Undervaluation

(Bloomberg) — The U.S. announced it’s opening a trade investigation into Vietnam’s currency policy to determine whether an undervalued dong hurts American businesses.

© Bloomberg Shoppers walk past a flower vendor on a bicycle at a street market in Ho Chi Minh City, Vietnam on Friday, Jan. 12, 2018. A global trade recovery and Vietnam’s young and low-cost workforce have been magnets for international investors like Nestle SA, which have opened factories in the country this year. That’s helping underpin its economy, which expanded 6.8 percent in 2017, among the fastest in the world.

Trade Representative Robert Lighthizer announced the so-called 301 case late Friday in Washington, which will also target the Asian country’s import of illegal timber. The probe follows determinations in August by the U.S. Treasury and Commerce departments that Vietnam had manipulated its currency in a specific trade case involving tires.

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“Unfair currency practices can harm U.S. workers and businesses that compete with Vietnamese products that may be artificially lower-priced because of currency undervaluation,” Lighthizer said in a statement. “We will carefully review the results of the investigation and determine what, if any, actions it may be appropriate to take.”

Vietnam’s Ministry of Foreign Affairs didn’t immediately respond to an email request for comment.

Vietnam’s central bank this week cut interest rates for the third time this year, seeking to bolster a gradual economic recovery.

Trade War Winner

The country’s export-reliant economy, a beneficiary of a shift by factories trying to steer clear of the U.S.-China trade war, is one of the few in Asia that’s expected to expand this year as trade and manufacturing recover from lockdown disruptions.

The dong traded at 23,181 per U.S. dollar at the close yesterday, little changed from Thursday, according to prices from banks compiled by Bloomberg.

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Vietnam’s central bank has moved to a more market-based framework of setting the currency since 2016, adjusting the dong’s reference rate on a daily basis. It allows the dong to trade within a band of 3% on either side of the reference rate, which is based on eight currencies.

Vietnam has never used monetary policy to give it an unfair competitive advantage, the nation’s State Bank Governor Le Minh Hung said during a Hanoi briefing this week. Hung spoke a day after Bloomberg News reported that the Trump administration plans to announce the investigation into Vietnam’s currency.

Read More: Trump Administration Set to Announce Vietnam Currency Probe

Hung said Vietnam will continue pursuing monetary policies to create macro stability, sustainable growth and support measures to help with the nation’s economic recovery.

Under the Trump administration, Vietnam has become one of the U.S.’s 10 biggest trading partners and one with the biggest imbalances. The U.S.’s goods-trade deficit with the Asian nation this year reached $34.8 billion by July, the biggest after the shortfalls with China, Mexico and Switzerland.

Read More: Lighthizer Set to Defend Trump’s Rocky Path Toward Trade Nirvana

Vietnam is already on the U.S. Treasury’s list of nations with currencies being monitored for manipulation. The department, in its latest report from January, urged Vietnam to “reduce its intervention and allow for movements in the exchange rate that reflect economic fundamentals, including gradual appreciation of the real effective exchange rate.”

In its statement, USTR said it will issue two Federal Register notices next week with details of the investigation.

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