US action against Vietnam baffles Hanoi

By John Reed

Trade Secrets is writing to you this week from sunny Bangkok, where “winter” has begun, promising cooler temperatures below 30C. It is even nicer strolling weather in Hanoi, but your correspondent is confined to Thailand for the foreseeable future because of Covid-19. 

With the world riveted on the US presidential election, why are we reporting from the other side of the world? It’s because Thailand and Vietnam have become targets for punitive US action on trade during the final weeks of President Donald Trump’s first — and possibly last — presidential term.

Depending on your perspective, this is either overdue action by the US to remove undeserved perks from two opportunistic Asian trading partners, or an ill-considered eleventh-hour salvo against two regional friends by what may (or may not) now be an outgoing administration. 

That is the subject of our main piece. Our Person in the news is Michel Barnier, the EU’s chief Brexit negotiator, who will be reporting to European parliamentarians about the state of EU-UK trade talks, while our chart of the day is picked from several showing the rise and fall of the US economy under Mr Trump.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at john.reed@ft.com

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US secretary of state Mike Pompeo, left, elbow bumps with Vietnamese prime minister Nguyen Xuan Phuc during an official visit in Hanoi last week © STR/EPA-EFE/Shutterstock

Move comes as US courts Vietnam as partner in resisting China

US trade representative Robert Lighthizer’s office (USTR) last week announced it was scrapping duty-free privileges on a range of Thai exports including electrical products, auto parts, and dried fruit and vegetables, valued at $817m.

Of Washington’s two actions against south-east Asian countries, this one is easier to grasp. The Thais enjoyed these privileges under the Generalised System of Preferences designed to benefit poor countries. US officials have privately pointed out that the kingdom, an upper middle-income country, should no longer be benefiting from GSP, but the official reason for the move was continuing issues over US pork products’ market access. Washington last year revoked $1.3bn of GSP preferences from seafood and other products, and mentioned Thailand’s undeniably patchy record on workers’ rights as the reason. 

More far-reaching — and baffling — is the Trump administration’s action against Vietnam, which comes at a time when Washington is courting Vietnam as a key regional partner in resisting Chinese political-economic hegemony and military aggression. 

The USTR last month opened a “Section 301” investigation into alleged currency manipulation by Vietnam. “Unfair currency practices can harm US workers and businesses that compete with Vietnamese products that may be artificially lower-priced because of currency undervaluation,” the combative Mr Lighthizer’s office said. The probe will also investigate what the US says is Vietnam’s trade in illegally harvested or traded timber.

This is worrying stuff for Vietnam: the 301 is the same kind of probe that resulted in Washington slapping tariffs on more than $350bn of goods from China. Prime minister Nguyen Xuan Phuc this week flatly denied Vietnam was manipulating its currency. “Vietnam is not using exchange rate policy to create a competitive advantage in international trade,” he said. 

It is easy to see why Washington is irritated. The US trade deficit with Vietnam hit a new record of $42.4bn in the year to August, and is set to be Washington’s fourth or fifth largest with any country this year. 

The US Treasury has sought to tie the surplus to central bank and government policies. The Treasury put Vietnam on a currency manipulator watchlist last year, and recently asserted the Vietnamese dong was undervalued by 4.7 per cent against the dollar, due in part to government manipulation. (Trade Secrets was unable to get a Vietnamese government or central bank official to comment, beyond Mr Phuc’s remarks.)

But the logic and optics of the USTR’s announcement were odd. Businesspeople in Vietnam point out that one of the reasons its trade surplus with the US is growing is because more US and international companies are shifting manufacturing away from China to alternative locations — just as the Trump administration has urged them to. Vietnamese officials are always quick to point out that most of the deficit is due to exports by multinationals with plants in Vietnam, such as Samsung, Apple or Gap. 

“The new Section 301 investigation, with the inherent possibility that the US will impose tariffs on goods from Vietnam, is at odds with the oft-stated goal of the Trump administration to favour diversification of supply chains in the Asia-Pacific in a manner favouring countries such as Vietnam rather than China,” said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi. 

Mr Trump is popular with many Vietnamese because of his tough action on trade against China, Vietnam’s former coloniser and historic enemy. Observers in Hanoi and Washington have speculated that the two countries might even upgrade their “comprehensive” partnership agreed under Barack Obama to a “strategic” one, though to do so they would need to overcome resistance from respective hawks in Washington and Hanoi. 

Whether Washington now follows through on the implied threat of its 301 probe is in the hands of the US bureaucracy, and the gift of whoever wins the presidency. The likeliest short-term outcome of the fracas may be an intensification of Vietnam’s efforts to buy American — a push already under way for more than a year, and one that will be challenging at a time when the pandemic is depressing demand. 

Energy appears to be the area where the two countries might most easily find common cause. Vietnam is facing a looming energy supply crunch, in part because China is constraining its ability to drill for oil and gas in the South China Sea. One way it plans to meet the shortfall would be to import US liquefied natural gas.

At last month’s Indo-Pacific Business Forum promoted by the Trump administration, the two countries signed a number of agreements on developing LNG infrastructure with General Electric, ExxonMobil and AES. The deals won’t on their own close one of America’s largest bilateral trade deficits, but they mark a few more drops in the barrel. 

“Vietnam might start to buy more US products — agri-goods, Boeing airplanes — to mitigate the trade deficit,” said Bill Stoops, chief investment officer at Dragon Capital Group in Ho Chi Minh City. “And one very big-ticket item in a few years could be LNG and associated infrastructure.” He added: “Vietnam might also start buying US T-bills to show goodwill.”

@JohnReedwrites

Charted waters

The US election on Tuesday capped almost four years of tumult for the world’s largest economy as President Donald Trump secured a $1.7tn tax cut, launched trade wars around the world and then grappled with the fallout from a pandemic that threw millions of Americans out of work. Read the rise and fall of the Trump economy in charts.

Person in the news

EU chief Brexit negotiator Michel Barnier is set to tell EU politicians there have yet to be any breakthroughs on key issues in EU-UK trade talks © Olivier Hoslet//POOL/EPA-EFE/Shutterstock

Who is it?

Michel Barnier, the EU’s chief Brexit negotiator.

Why is he in the news?

He is set to report on Wednesday that close to two weeks of intensified talks have yielded progress in crafting an EU-UK trade treaty but no breakthroughs on the main sticking points. He will be briefing national ambassadors and European parliamentarians.

Crucially, the EU and UK have been unable to bridge gaps on the question of EU fishing rights in British waters and on rules limiting state aid to companies. Mr Barnier’s British counterpart David Frost will update UK prime minister Boris Johnson on the talks and is expected to say there is “still quite a way to go” to resolve outstanding issues.

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Source: Economy - ft.com