Vietnam’s Economy and U.S. Trade: Key Issues in 2021

Vietnam’s Economy and U.S. Trade: Key Issues in 2021

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February 1, 2021
Vietnam’s Economy and U.S. Trade: Key Issues in 2021
Over the last decade, Vietnam has emerged as a major
electronics. Vietnam’s importance in regional industrial
manufacturing center in Asia, and has risen to become one
production may also have benefited from newly-established
of the top 10 trading partners for the United States. The
regional trade agreements (RTAs), such as the 11-nation
expansion of Vietnam’s export-oriented manufacturing
Comprehensive and Progressive Agreement for Trans-
sector contributed to Vietnam experiencing rapid economic
Pacific Partnership (CPTPP) that went into effect in early
growth during most of the decade. Vietnam’s rise to be a
2019, and may similarly benefit from the 15-nation
major U.S. trading partner was stimulated in part by shifts
Regional Comprehensive Economic Partnership (RCEP)
in regional supply chains, driven by rising production costs
that was concluded in late 2020. In addition, the continuing
in the People’s Republic of China (China, or PRC), as well
trade tensions between the PRC and the United States likely
as trade tensions between the PRC and the United States.
contributed to Vietnam’s positive GDP growth in 2020.
The expansion of bilateral trade has resulted in a major
Growth in Bilateral Trade
increase in the U.S. merchandise trade deficit with Vietnam
According to the U.S. International Trade Commission
(see Figure 1). The growth in trade also contributed to
(USITC), bilateral merchandise trade has nearly quadrupled
other forms of trade friction. The Trump Administration
in size between 2011 and 2020. Most of that growth is due
accused Vietnam of unfair trade practices, including an
to the rapid rise in U.S. imports from Vietnam. As a result,
allegation of currency manipulation. Vietnam has claimed
the trade deficit with Vietnam was the 3rd largest for the
that the U.S. government has utilized unwarranted trade
United States for the first 10 months of 2020, after the PRC
restrictions and regulations to block Vietnamese exports to
and Mexico, respectively. According to GSO, in 2020, the
the United States, particularly exports of catfish.
United States was Vietnam’s largest export market, its 5th
biggest source of imports, and 2nd largest trading partner
Figure 1. Growth in U.S.-Vietnam Merchandise Trade
(after the PRC). GSO says Vietnam’s trade surplus with the
Bil ions of U.S. dol ars
United States in 2020 was $63.4 billion.
80
Bilateral Trade Issues
60
The rapid growth in bilateral trade has given rise to several
40
trade issues. Some U.S. companies have made allegations
of unfair competition by Vietnamese companies.
20
Vietnamese companies have similarly accused the United
0
States of unwarranted and discriminatory trade regulations
-20
and restrictions designed to reduce Vietnam’s exports to the
-40
United States.
-60
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Special 301 Investigation
(thru
On October 2, 2020, USTR announced that it was
Oct.)
“initiating an investigation of Vietnam’s acts, policies, and
practices related to the import and use of timber that is
Exports
Imports
Trade Balance
illegally harvested or traded.” According to the USTR
announcement, “Evidence indicates that much of the timber
Source: CRS, based on U.S. International Trade Commission data

imported by Vietnam was harvested against the laws of the
Vietnam’s Economy
source country.” USTR’s interest in Vietnam’s timber trade
may have been influenced by the rapid increase in
According to the International Monetary Fund (IMF),
Vietnam’s furniture exports to the United States over the
Vietnam was one of 26 economies that experienced positive
last 10 years. USTR held a public hearing on Vietnam’s
growth in 2020. Vietnam’s General Statistics Office (GSO)
alleged illegal import and use of timber on December 28,
reported 2.9% real gross domestic product (GDP) growth in
2020. For more about this issue, see CRS In Focus
2020, down from 7.0% in the two previous years.
IF11683, Section 301 Investigations: Vietnam’s Timber
According to GSO, the growth was relatively balanced
Trade and Currency Practices.
across all sectors, and led by strong domestic investment
and expanding international trade.
Allegations of Currency Manipulation
USTR also announced on October 2, 2020, an investigation
Over the last 10 years, Vietnam has benefited from shifting
into “whether Vietnam’s acts, policies, and practices related
regional manufacturing supply chains, which has seen the
to the valuation of its currency are unreasonable or
nation diversifying beyond its role as a regional clothing
discriminatory and burden or restrict U.S. commerce.”
manufacturing hub into new products, such as consumer
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Vietnam’s Economy and U.S. Trade: Key Issues in 2021
According to USTR, its analysis indicates that “the dong
However, it is not known if President Biden will be as
was undervalued on a real effective basis” in 2017, 2018,
concerned about bilateral trade deficits as his predecessor.
and 2019. On January 15, 2021, USTR announced it was
“not taking any specific actions in connection with the
Pending U.S. Trade Investigations
findings at this time.”
The Biden Administration will have the authority to
determine whether or not to continue the Section 301
In December 2020, the U.S. Department of the Treasury
investigation of Vietnam’s timber trade and the
(USDOT) designated Vietnam (along with Switzerland) as
investigation of Vietnam’s alleged intentional
a country that manipulates its currency, in accordance with
undervaluation of the dong. As Deputy Secretary of State
the 1988 Trade Act (P.L. 100-418) and the Trade
during the Obama Administration, Secretary of State
Facilitation and Trade Enforcement Act of 2015 (P.L. 114-
Antony Blinken was supportive of the growth in bilateral
125). In November 2020, the U.S. Department of
ties, and may caution against actions that could increase
Commerce imposed a preliminary anti-subsidy tariff on car
tensions between the two nations.
and truck tires from Vietnam in part based on USDOT
evidence of currency manipulation.
Regional Trade Agreements
The impact of the coronavirus (COVID-19) pandemic on
Vietnam denies that it is manipulating the value of the dong
the global economy mitigated the anticipate effects of the
to obtain trade benefits. According to Vietnam’s central
implementation of the CPTPP in 2020. Assuming the
bank, the State Bank of Vietnam, its monetary policies are
distribution of the COVID-19 vaccines leads to a
designed to contain inflation and ensure macroeconomic
restoration of widespread economic growth, the CPTPP and
stability. IMF studies have found that the dong is
RCEP will be factors in 2021 trade flows.
undervalued and overvalued, depending on the method of
evaluation used.
United States and Vietnam are not currently mutual parties
to any comprehensive trade agreements. President Biden, as
U.S. Regulation of Catfish
Vice President in the Obama Administration, was a
Vietnam is a major exporter of frozen fish fillets using
supporter of the proposed Trans-Pacific Partnership (TPP),
certain varieties of fish—known as basa, swai, and tra in
from which the Trump Administration withdrew, and may
Vietnamese—that are commonly referred to as catfish in
seek to join the CPTPP. As a presidential candidate, he
the global fish market. In 2002, Congress passed legislation
stated his openness to the possibility, but indicated that
that prohibited the labeling of basa, swai, and tra as
significant investments in U.S. infrastructure and workers
“catfish” in the United States. In August 2003, the U.S.
would be a higher priority. Similarly, he could open
government imposed antidumping duties on “certain frozen
discussions with RCEP member about possible U.S.
fish fillets from Vietnam,” including basa, swai, and tra. In
membership. Another option is to negotiate a bilateral trade
the 2008 Farm Bill (P.L. 110-246), Congress transferred
agreement.
catfish inspection (including basa, swai, and tra) from the
Food and Drug Administration (FDA) to the U.S.
Emerging Major Trade Products
Department of Agriculture (USDA); Congress confirmed
Over the last 20 years, Vietnam has grown to become a
that transfer in the Agriculture Act of 2014 (P.L. 113-79).
major source for U.S. imports of clothing, footwear, and
In December 2015, USDA released final regulations for
toys and games, and more recently, electrical machinery,
catfish inspection.
furniture, and machinery. Through October, 2020, U.S.
imports of electrical machinery from Vietnam, were up
The Vietnamese government views the U.S. response to the
more than 20%. If the past is any indicator, U.S. companies
growth of Vietnam’s basa, swai, and tra exports as a case of
may raise concerns in 2021 about Vietnam’s growing
trade protectionism designed to shelter U.S. catfish
export of electrical machinery to the United States.
producers from legitimate competition. On February 22,
2018, Vietnam filed a WTO complaint that the U.S.
New Leadership in Vietnam
inspection program for catfish imports violates the WTO
In January 2021, Vietnam’s Communist Party (VCP) held
SPS Agreement. That complaint is still pending.
its 13th National Congress at which it selected current
General Secretary and President Nguyen Phu Trong, to
Key Issues in 2021
serve an unprecedented third term as VCP General
With a new Congress and a new President taking office in
Secretary. VCP Congresses are held every 5 years. The 13th
January 2021, it is unclear what may emerge as key
Congress’ appointees for Vietnam’s other top political
economic and trade issues in U.S. relations with Vietnam
positions—President, Prime Minister, and Secretary
during the year. Some of the known outstanding past issues
General of the National Assembly—are expected to be
are discussed below.
formally elected by the National Assembly in May. Trong’s
continued term as VCP leader is expected to mean
Bilateral Trade Deficit
continuity in the overall direction of Vietnam’s domestic
The U.S. bilateral trade deficit with Vietnam will likely to
and foreign policies.
continue to increase, particularly as the effects of the
CPTPP and RCEP alter regional trade flows. Simulations of
Michael F. Martin, Specialist in Asian Affairs
the trade effects of both RTAs show Vietnam as one of the
greatest “winners” and the United States as one of the major
IF11753
“losers” of the projected shifts in international trade.
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Vietnam’s Economy and U.S. Trade: Key Issues in 2021

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