President Donald Trump is likely to unveil proposed tariffs on Vietnamese goods before he leaves office in January, currency and trade experts say, after the US Treasury branded the growing trade partner a "currency manipulator" last week.
US companies that import goods from Vietnam should brace themselves for significant tariffs from the US Trade Representative's (USTR) ‘Section 301’ investigation into currency valuation practices, experts have warned.
Results of the probe, running in parallel with the Treasury review announced last week, could be made public as soon as January 7.
"It is wise to be planning now for the conclusion of the Section 301 process because, especially with the Treasury designation, it is extremely likely that the United States will impose some kind of retaliation against Vietnam," said Deborah Elms, executive director of the Singapore-based Asian Trade Centre.
US companies imported about $65 billion worth of goods from Vietnam in the first 10 months of 2020, compared with $66.6 billion for all of 2019. Tariffs could hit the $400 billion-plus sales US clothes and footwear sector, along with furniture, electronics and household goods.
"There will be economic consequences," Elms told a Friday web event hosted by the American Chamber of Commerce in Vietnam.
Deadly foes during the Vietnam War in the 1960s and early 1970s, Vietnam and the United States have enjoyed significantly warmer relations in recent years. Washington had considered Hanoi a strategic security and economic partner in South-east Asia to help counter China's growing influence, including during the Trump administration, but tariffs would dent the relationship.
Vietnam's commerce ministry said on Monday that tariffs would cause firms in the country to "lose their confidence in doing businesses with US partners" and reduce imports from the United States. It said officials from the two countries will hold "extremely important" talks before the end of the year.
Taxing Vietnamese imports would present yet another trade complication for President-elect Joe Biden as he takes over, and could prompt retaliatory tariffs on US exports to Vietnam.
Trump has thrown up new economic restrictions on China in recent weeks, including adding the top Chinese chipmaker SMIC and drone maker SZ DJI Technology to a technology blacklist on Friday.
The Treasury's long-delayed currency report, published on December 16, concluded that Vietnam, along with Switzerland, had exceeded all three of its thresholds for currency manipulation during the year ending June 30.
Both countries had foreign exchange market interventions and global current account surpluses exceeding 2% of gross domestic product (GDP), and a $20 billion-plus trade surplus with the United States.
"This administration clearly has a beef here and wants to send a signal that Vietnam needs to be brushed back for its currency policies," said Matthew Goodman, a former Treasury official and an Asian economics expert at the Center for Strategic and International Studies.
The message is that the United States will not tolerate Vietnam using an artificially low currency to aid its development in the same the way that China undervalued its currency for decades, Goodman said, adding that he views Vietnam's high current account surplus as a temporary phenomenon.
Concerned US executives are already reaching out to Congress. "Just the rumour of another massive tax on American companies has created such a panic that congressional offices are already getting panicked calls from their hometown businesses," one congressional aide said.