Trade Cases

Leibowitz on Trade: U.S., Vietnam Currency Deal Means 'Worry Less' About Steel

Written by Michael Cowden

The Biden administration has resolved, at least in part, a potentially serious conflict over currency exchange rates with Vietnam. This could be a signal that other trade problems might also be resolved.

Exchange rates matter to economists and businesses, and therefore to the rest of us, because a “weak” currency abroad will facilitate exports to countries with “strong” currencies. If the Vietnamese dong declines in value against the U.S. dollar, Vietnam’s exports to the U.S. will be cheaper. Vietnam has exhibited a weakening currency against the U.S. dollar in recent months, which helped Vietnam increase exports to the United States by 77% in the last two years – while U.S. exports to Vietnam stayed relatively flat.

vietnam flagIn a countervailing duty investigation against passenger vehicle and light truck (PVLT) tire imports, the Department of Commerce determined that Vietnamese action to weaken its currency amounted to a “subsidy” and counted that subsidy in the countervailing duty rate for PVLT tires from Vietnam.

Earlier in July, the U.S. International Trade Commission (ITC) found that passenger vehicle and light truck tires imported from Vietnam, South Korea, Taiwan and Thailand cumulatively had injured the domestic industry making similar products. This means that countervailing duties will be applied to PVLT tires from Vietnam (imports from the other three countries will face only antidumping duties, while Vietnam will face both).

The PVLT tires case was the first time that Commerce had applied new rules on currency manipulation in a countervailing duty case. That raised questions in other industries as to whether similar countervailing duties could be imposed on imports from Vietnam of other products, including steel.

Last week, the U.S. and Vietnam announced an agreement on currency matters that may affect the future imposition of countervailing duties on those other products. How an international agreement announced and negotiated by the Office of the U.S. Trade Representative (USTR) and the Department of the Treasury can affect imposition of countervailing duties by the Department of Commerce presents one of those thorny “turf” problems unique to Washington, D.C.

Let’s see what might happen.

First, Commerce jealously guards its authority to be the sole decision-maker about imposition of countervailing duties. Commerce issued its final determination in the tires case back in May and shows no sign of revisiting its calculation of a subsidy based on past currency manipulation. The countervailing duty margin rate for currency manipulation was only 1.69%. That is not a prohibitively high rate.

Second, the agreement between the U.S. and Vietnam simply acknowledges that Vietnam is not permitted to reduce its currency’s value to gain a trade advantage in the future. It says nothing about what Vietnam has done in the past. But a joint U.S.-Vietnam statement noted that the Treasury Department would notify “other agencies” of the agreement, a clear reference to the Commerce Department.

There are currently no other Commerce investigations pending that have a currency component. But that could change at any time. Domestic competitors of Vietnamese companies exporting to the U.S. should carefully analyze the potential subsidies, including currency manipulation, and determine whether currency manipulation is an issue worth raising.

Third, the issue of currency manipulation is very controversial among U.S. trading partners. Vietnam is currently friendly with the U.S. but is not a long-standing ally. For the U.S. to raise currency manipulation as an issue with friendly countries would be a serious retrograde step for the U.S. and must be considered unlikely.

Therefore, I believe that the use of currency manipulation as a weapon in trade relations has likely reached its peak with the Vietnam case. I will not say “don’t worry” but “worry less.”

But continue to worry about China – currency manipulation has not been applied there, but it could in the future. The yuan-dollar exchange rate has not changed much in 2021 so far, so the danger of U.S. action is pretty low at the moment.

For companies that trade extensively with Vietnam, some caution is appropriate. New antidumping or countervailing duty cases are certainly possible. But the relationship of the Vietnamese dong with the U.S. dollar will not be the most important trade issue between those two countries. Healthy bilateral trade is continuing. Vietnam runs a considerable trade surplus with the United States and has for several years.

For a while during the Trump years, it appeared that the administration was bent on using currency relationships to impose additional tariffs on countries running trade surpluses with the U.S. The narrative of other countries taking advantage of the United States has since cooled but has not disappeared.

An avalanche of countervailing duty cases against Vietnam and possibly other countries for currency practices may happen. Private industry is still the primary moving force in deciding whom to file against, and the Commerce Department views its principal mission as protecting the industries that file cases.

What may have changed, however, is the position of other parts of the administration that negotiated with Vietnam and other countries. Adding an irritant to those negotiations through accusations of currency manipulation will not be uppermost on the minds of those other agencies.

In fact, just last month USTR ended the Section 301 case against Vietnam’s currency practices. That case was started in October of 2020. USTR found that the agreement on currency between Vietnam and the United States meant that no further action was needed on currency issues between the U.S. and Vietnam.

Maybe the Commerce Department will pay attention and conclude that currency manipulation is no longer a serious source of subsidization by the government of Vietnam.  As noted above, “don’t worry” may not be the right conclusion for traders, but “worry less” might be.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz

1400 16th Street, NW, Suite 350

Washington, D.C. 20036

Phone:  (202) 776-1142

Mobile:  (202) 250-1551



Michael Cowden

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