By John Reed
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Trade Secrets is writing to you this week from sunny Bangkok, where “winter” has started, and promises cooler temperatures below 30 ° C. The weather is even nicer in Hanoi, but your correspondent will be in Thailand for the foreseeable future due to Covid-19 limited.
Why are we reporting from the other side of the world after the world loved the US presidential election? This is because Thailand and Vietnam have become targets for U.S. punitive anti-trade measures in the final weeks of President Donald Trump’s first – and possibly final – term in office.
Depending on your perspective, this is either an overdue U.S. move to remove undeserved perks from two opportunistic Asian trading partners, or a rash salvo at the eleventh hour against two regional friends who may (or may not) be an outgoing government.
That is the theme of our main piece. Our Person in the news is Michel Barnier, the EU’s chief negotiator for Brexit, who will report to European MPs on the state of the EU-UK trade talks, while our daily menu is chosen from among several that show the rise and fall of the US economy under Trump.
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US Secretary of State Mike Pompeo (left) bumps the elbow with Vietnamese Prime Minister Nguyen Xuan Phuc during an official visit to Hanoi last week. © STR / EPA-EFE / Shutterstock
Moving comes as US courts Vietnam as a partner in the resistance against China
The office of US Sales Representative Robert Lighthizer (USTR) announced last week that it was abolishing duty-free privileges on a number of Thai exports, including electrical goods, auto parts, and $ 817 million worth of dried fruits and vegetables.
This is easier to grasp of Washington’s two actions against Southeast Asian countries. The Thais enjoyed these privileges under the General System of Preferences, which is said to benefit poor countries. US officials have privately advised that the Kingdom, a higher-middle-income country, should no longer benefit from the GSP, but the official reason for the move was persistent problems with US pork product access. Washington revoked US $ 1.3 billion GSP preferences for seafood and other products last year, citing Thailand’s undeniably inconsistent record on workers’ rights.
More far-reaching – and more confusing – is the action by the Trump administration against Vietnam, taking place at a time when Washington is wooing Vietnam as a key regional partner to resist China’s politico-economic hegemony and military aggression.
The USTR launched a Section 301 investigation into suspected currency manipulation by Vietnam last month. “Unfair currency practices can harm US workers and companies that compete with Vietnamese products that may be artificially cheaper due to currency undervaluation,” said Mr. Lighthizer’s combative office. The probe will also investigate what the US calls the Vietnamese trade in illegally harvested or traded timber.
For Vietnam, this is worrying: the 301 is the same type of probe that led Washington to slap tariffs on goods from China valued at more than $ 350 billion. Prime Minister Nguyen Xuan Phuc flatly denied Vietnam tampering with its currency this week. “Vietnam does not use exchange rate policy to create a competitive advantage in international trade,” he said.
It’s easy to see why Washington is irritated. The US trade deficit with Vietnam hit a new record of $ 42.4 billion by August and will be the fourth or fifth largest in Washington with each country this year.
The US Treasury Department has tried to tie the surplus to central bank and government policies. The Treasury Department put Vietnam on a watch list for currency manipulators last year and recently claimed that the Vietnamese dong was 4.7 percent undervalued against the dollar, in part due to government manipulation. (Trade Secrets was unable to get a Vietnamese government or central bank official to comment beyond what Mr Phuc said.)
But the logic and visuals of the USTR announcement were strange. Businesspeople in Vietnam point out that one of the reasons for the growing trade surplus with the US is that more and more US and international companies are shifting production from China to alternative locations – as the Trump administration has called for. Vietnamese officials are always quick to point out that most of the deficit is due to exports from multinational companies with plants in Vietnam such as Samsung, Apple or Gap.
“The new Section 301 investigation, with the inherent possibility for the US to impose tariffs on goods from Vietnam, contradicts the Trump administration’s often-stated goal of beneficially promoting supply chain diversification in Asia Pacific countries like Vietnam instead of China, ”said Adam Sitkoff, Managing Director of the American Chamber of Commerce in Hanoi.
Mr Trump is popular with many Vietnamese for his tough action against China, the former colonialist and historical enemy of Vietnam. Observers in Hanoi and Washington have speculated that the two countries could even expand their “comprehensive” partnership agreed under Barack Obama to a “strategic” partnership, although to do so they would have to overcome the resistance of the respective hawks in Washington and Hanoi.
Whether Washington carries out the implicit threat of its 301 probe is in the hands of the US bureaucracy and the gift of whoever wins the presidency. The fracas’ most likely near-term outcome could be an intensification of Vietnam’s efforts to buy Americans – a push that has been underway for more than a year and that will be challenging at a time when the pandemic is depressing demand.
Energy seems to be the area where the two countries could most easily find a common cause. Vietnam faces an impending energy supply crisis, partly because China is limiting its ability to drill for oil and gas in the South China Sea. One way to fix the deficit would be to import US liquefied natural gas.
At the Trump administration-sponsored Indo-Pacific Business Forum last month, the two countries signed a series of agreements to develop LNG infrastructure with General Electric, ExxonMobil and AES. The deals won’t close one of America’s largest bilateral trade deficits alone, but they mark a few more drops in the barrel.
“Vietnam could start buying more US products – farm produce, Boeing planes – to help ease the trade deficit,” said Bill Stoops, chief investment officer at Dragon Capital Group in Ho Chi Minh City. “And a very big ticket in a couple of years could be LNG and the associated infrastructure.” He added, “Vietnam could also start buying US T-bills to show goodwill.”
Tuesday’s US election crowned nearly four years of tumult for the world’s largest economy as President Donald Trump secured a $ 1.7 billion tax cut, sparked trade wars around the world, and then grappled with the aftermath of a pandemic, that put millions of Americans out of work. Read graphs of the rise and fall of the Trump economy.
Person in the news
EU chief negotiator for Brexit, Michel Barnier, will tell EU politicians that the EU-UK trade talks have not yet made any breakthroughs on key issues. © Olivier Hoslet // POOL / EPA-EFE / Shutterstock
Who is it?
Michel Barnier, the EU’s chief negotiator for Brexit.
Why is he on the news?
He will report on Wednesday that almost two weeks of intense talks have brought progress in the drafting of a trade agreement between the EU and the UK, but no breakthroughs on key sticking points. He will inform national ambassadors and European parliamentarians.
Crucially, the EU and UK have not been able to address loopholes on EU fishing rights in UK waters and on rules restricting state aid to businesses. Barnier’s UK counterpart David Frost will keep UK Prime Minister Boris Johnson updated on the talks. It is expected that there is still a “long way” to go to resolve open issues.
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