According to the report just released on August 6 of Can Van Luc and the author group of BIDV Research Training Institute, Vietnam was not currently labeled by the United States (the US) as a currency manipulator but had been listed as 21 countries under the watch. However, Vietnam was also a country that could be transferred to a group of currency manipulators if there was no adjustment, because Vietnam had reached two thresholds (trade balance with the US surplus of over $20 billion and current account balance surplus of over two percent of GDP). The third condition was the one-way intervention in the foreign exchange market through the State Bank of Vietnam (SBV)’s continuous net buying of foreign currencies which had nearly reached the limit (1.7 percent of GDP compared to the limit of two percent of GDP). This was a risk for Vietnam in subsequent reviews by the US Treasury (which was the most recent September 2019).
Therefore, the authors put forward three recommendations to deal with the current US-China trade war, when the US labeled currency manipulation for China.
Firstly, it is necessary to coordinate well to exchange information, explain and show goodwill towards the US. Accordingly, SBV should coordinate with related ministries and agencies to work on issues that the US Department of Finance is interested in explaining Vietnam’s exchange and trade policies to serve the review in September 2019; avoid being labeled in the list of currency manipulators, causing many disadvantages for Vietnam.
Secondly, Vietnam’s exchange rate policies should limit direct, one-way and continuous impact on the foreign exchange market, without being violated the third limit as mentioned above. Vietnam regulates monetary policy to control inflation, stabilise macro economy, rationalise economic growth. It is necessary to explain to the US that the exchange rate management in the past is in line with domestic and international market developments as well as the characteristics of Vietnam’s economy, not to create an unfair competitive advantage.
In particular, Vietnam should avoid being affected by currency warfare (if any) and not devaluing the dong, because the exchange rate adjustment will involve many aspects of the economy (not only related to exports, but also imports, foreign debts, inflationary pressures, etc.) and could be subject to a currency manipulation by the US. Instead, Vietnam needs a flexible exchange rate policy, continues to consolidate its foreign exchange reserves, combines with effective communication to control the spread of risk factors.
Thirdly, authorities need to seriously handle trade and investment activities in Vietnam to avoid US tax rates, because US President D.Trump said that Vietnam was the most benefiting country from the trade war in the past. The US has a tough attitude about trade and does not hesitate to use sanctions on violating countries. In fact, the US tax increase on products accused of changing origin to avoid taxes is a typical, such as the tax rate of 456.23 percent for steel imported from Vietnam using materials from Korea and Taiwan.
