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No 'Evidence’ of Manipulation

CTA Seeks ‘Transparent’ Section 301 Probe Into Vietnam Currency Practices

CTA views the World Trade Organization as “a more suitable option” than a Section 301 investigation for adjudicating allegations that Vietnam is deliberately undervaluing the dong against the dollar to gain an unfair economic advantage over the U.S., said Sage Chandler, CTA vice president-international trade, at the Office of the U.S. Trade Representative's virtual hearing Tuesday on what remedies it should impose if the investigation finds Vietnam’s alleged currency misbehavior is an actionable Section 301 offense.

All but a few of the nearly two dozen witnesses at the hearing spoke vehemently against tariffs. When members of the interagency Section 301 committee asked the tariff opponents what actions USTR should take instead, virtually all urged the U.S. to bring Vietnam to the negotiating table with the long-term goal of striking a free-trade agreement, similar to the deals Vietnam signed with non-U.S. trading partners.

CTA urges the Trump administration “to ensure a transparent process” during the Section 301 investigation, including granting “the time needed for meaningful stakeholder consultation,” said Chandler. The association wants the assurance of “stakeholder input in every step of this investigation, including the opportunity to comment and testify on any potential action against Vietnam,” such as tariffs, she said.

The timing of USTR's Jan. 7 deadline for post-hearing rebuttals is stoking fears among the CTA rank and file that the administration may seek to rush through tariffs on Vietnam, even if the duties were to take effect after President Donald Trump leaves office. CTA members “remain concerned about tariffs on their supply chain,” said Chandler. Section 301 tariffs would “impact their ability to employ in the United States and their ability to deliver the quality products desired by U.S. consumers,” she said. Members worry tariffs on Vietnamese imports would put their businesses “at an immediate disadvantage relative to their competitors in other nations,” she said.

Vietnam is “of central importance” to evolving global information and communications tech (ICT) supply chains, said Sam Rizzo, Information Technology Industry Council senior director-policy. “We raise urgent, substantive and procedural concerns with the use of Section 301 in this policy and bilateral context,” he said.

Though there might exist “legitimate concerns” about Vietnamese currency devaluation, “the application of tariffs on goods imported from Vietnam,” especially on ICT devices and components, “will prove counterproductive to addressing underlying policy concerns,” said Rizzo. Tariffs also would have “far-reaching, negative commercial and strategic repercussions” on the U.S., he said. Import duties would raise consumer prices on mobile phones, tablets, laptops and other devices “at a time when these products are most critical to sustaining remote work, online learning and U.S. economic activity more broadly,” he said.

Retail groups also expressed their tariff fears. The National Retail Federation worries “about this investigation moving forward and the potential for tariffs to be placed on imports from Vietnam as a result,” said David French, senior vice president-government relations. The Treasury Department, not USTR, should take the lead on Vietnamese currency manipulation, he said. “Tariffs should not be a consideration for enforcement in this matter," he said. “Tariffs are taxes that are paid by U.S. businesses and their customers.” NRF estimates consumers have paid more than $68 billion in tariff-related costs due to the U.S. trade war with China, said French.

The Retail Industry Leaders Association wants to work with any U.S. administration to hold U.S. partners “accountable for unfair trading practices,” said Blake Harden, vice president-international trade. But RILA can’t support “non-targeted actions” like tariffs that “unfairly tax American businesses and families,” she said. Piling onto their “financial strain during an ongoing pandemic and economic recession will slow our recovery and put Americans out of work,” she said. RILA represents Best Buy, Target, Walmart and other big-box retailers.

Those who backed quickly imposing tariffs on Vietnamese imports were vastly outnumbered at the hearing. “Vietnam’s currency practices ensure that the dong is undervalued, making Vietnamese products cheaper in the U.S. market,” said Magnum Magnetics President Mark Bradley. That puts Magnum's U.S.-produced flexible magnets at an unfair competitive disadvantage, he said. “If it wasn’t for the unfair actions of foreign actors, Magnum would be expanding its workforce. Instead, we’ve seen our employee count drop by almost 25% since 2012.” He's seeking Section 301 remedial tariffs on all flexible magnets imported from Vietnam, commensurate with Hanoi’s devaluation of the dong, but didn’t say how high he thinks the tariffs should go.

United Steelworkers Legislative Director Roy Houseman was more hawkish in calling for tariffs. The union “strongly supports” the Section 301 currency investigation into Vietnam “and urges timely action to address artificial devaluation” of the dong against the dollar, said Houseman.

Vietnam’s currency manipulation is contributing to its “large and growing” trade surplus with the U.S., said Houseman. The union “encourages measures of relief that will be aggressive and responsive to shifting currency dynamics,” he said. If USTR unwisely imposes a “static” tariff on Vietnamese imports that can bend up or down to suit currency fluctuations, Hanoi could simply “manipulate the dong to broadly adjust” for the U.S.-imposed duties, he said. The tariffs instead should be imposed with elasticity, increasing proportionally “to any increased devaluation or manipulation” of the dong, he said.

But Harvard University economist David Dapice said there’s “no objective evidence that Vietnam is undervaluing its currency by any normal metric." Correcting for inflation, what economists call the “real exchange rate” between the dong and dollar has been “stable” at least since 2016, said Dapice, describing himself as a Vietnam expert of 30 years’ standing. “It has not changed.”

Vietnam’s critics wrongly claim Hanoi’s deliberately devalued dong is the big culprit in the country’s big and growing trade surplus with the U.S., said Dapice. The “major impact” of U.S. tariffs on China has been that it moved a “huge amount, $1 billion to $2 billion a month, of foreign direct investment into Vietnam,” he said. Most of the “value added” in Vietnamese-sourced smartphones is “quite low,” he said. “Vietnam only assembles the parts that come in from all over the world. So if you put a heavy tariff on Vietnam, you’re certainly penalizing Vietnam, but you’re also penalizing Taiwan, South Korea, Japan,” plus U.S. importers, he said. “These people have invested tens of billions of dollars in Vietnam in a country that has not changed the real value of its exchange rate.”

If USTR is intent on imposing tariffs on Vietnam, “the question you want to ask is, who are we trying to hurt?” said Dapice. “Are we trying to hurt the American consumer? Are we trying to hurt our allies in Asia? Are we trying to hurt Vietnam, which has done nothing remarkable to its currency?”