U.S. and Vietnam Reach Agreement on Alleged Currency Manipulation

Trade Update • JULY 21, 2021

On Monday, the U.S. Treasury Department and the State Bank of Vietnam reached an agreement to address concerns raised by the United States about Vietnam’s currency practices.

Under the deal jointly announced by Treasury Secretary Janet Yellen and SBV Governor Nguyen Thi Hong, Vietnam committed to refrain from any “competitive devaluation” of its currency in order to gain an export advantage and to make “ongoing efforts” to modernize its monetary policy.

The agreement follows “constructive discussions” between the two sides in recent months and will surely be welcomed by the more than 70 business groups and industry associations of all kinds that last week had desperately urged the U.S. Trade Representative not to impose tariffs on Vietnamese imports.

Background

Largely prompted by alarm over a rapidly growing bilateral trade gap, last October, the former Trump administration launched an investigation into possible currency manipulation by Vietnam, later concluding that the country was taking “unreasonable” actions to ensure a “persistent undervaluation” of the Vietnamese dong in order to make its exports cheaper.

Although finding Vietnam’s currency practices to be actionable under Section 301 and despite Treasury having already designated Vietnam a currency manipulator earlier in the year, then-USTR Robert Lighthizer decided to defer action to the next administration.

The Biden administration’s Treasury has since dropped the currency-manipulator designation, opting instead to resolve the matter through a process of “enhanced engagement” with Hanoi. At about the same time, USTR Katherine Tai discussed her ongoing concerns over the issue with her Vietnamese counterpart during a virtual bilateral meeting at the start of April, but since then has continued holding off taking any action against imports from Vietnam.

Going Forward

In a statement, USTR Tai said she welcomed the joint announcement from Hong and Yellen and said USTR would work in coordination with Treasury to monitor Vietnam’s “implementation of its commitments” and ensure the country addresses the acts, policies and practices related to the valuation of its currency “that were found actionable in the Section 301 investigation.”

“Countries should not be able to manipulate their exchange rates to gain an unfair competitive advantage in international trade, and I commend Vietnam for its commitment to addressing our concerns,” Tai said. “Vietnam can set an important example for the Indo-Pacific region by allowing its exchange rates to move in line with underlying economic fundamentals.”