Treasury Department Names Vietnam and Switzerland Currency Manipulators: What Companies Importing from or Investing in these Countries Need to Know

The Treasury Department named Vietnam and Switzerland as currency manipulators in its foreign-exchange report to Congress, which addresses the currency practices and macroeconomic policies of major United States trading partners. While many countries have been a mainstay on the Treasury’s currency manipulator “monitoring” list, the U.S. has only ever previously labeled three other countries as currency manipulators – China (from 1992 to 1994; from August 2019 to January 2020), Japan, and Taiwan (both in the late 1980s).

Treasury uses three criteria, set by Congress, to determine when other countries are preventing market forces from setting their currency values:

• The extent of active intervention in currency markets
• The size of trade surpluses with the U.S.
• The size of the country’s current-account surplus (a measure of trade that looks at investment income and other financial flows)

According to the most recent semi-annual report, both Vietnam and Switzerland passed the benchmark threshold on all three criteria. Reflecting the Trump administration’s “whole of government” approach to trade, Treasury Secretary Steven Mnuchin linked this latest finding to broader trade issues, noting that it marked “a strong step … to safeguard economic growth and opportunity for American workers and businesses.” Treasury now plans to begin talks with both countries regarding specific policy actions to reset their currencies against the dollar.

Overall, these findings are likely to place more pressure on Vietnam than Switzerland to take steps to address Treasury’s concerns. Vietnam has already been subject to a series of investigations into its currency practices as well as other trade-related investigations. Earlier this year, Treasury — in combination with the U.S. Department of Commerce — found that Vietnam depressed its currency, allowing for the employment of currency-focused antidumping and countervailing duties on certain imports from Vietnam. In October 2020, the U.S. Trade Representative initiated an investigation into Vietnam’s currency practices and a separate investigation into illegally harvested and traded timber pursuant to Section 301 of the Trade Act of 1974 — the same statute that underpins current U.S. tariffs on imports from China. The timing of upcoming public hearings in these investigations on December 28 and December 29, 2020, and deadline for subsequent rebuttal comments on January 7, 2021, which the Office of the United States Trade Representative is procedurally required to consider before implementing such tariffs leaves a small window for enactment before President-elect Biden’s inauguration on January 20, 2021.

Any implementation of Section 301 tariffs against Vietnam is likely to impact many U.S. importers. Following the Trump administration’s implementation of Section 301 retaliatory tariffs on a wide range of Chinese-made goods in response to the administration’s determination of unfair trade practices, many U.S. importers turned to Vietnam as an alternative manufacturing source. Thus, these companies could face tariffs despite investing in alternatives to China. So far, the incoming Biden administration has not announced how it will address this issue. Companies with interests in Vietnam, or that may be impacted by imports from the country, should closely watch these developments and be prepared to make changes to their investments and supply chains in response.