The US Department of the Treasury has determined that Vietnam’s currency was undervalued last year by about 4.7 percent against the US dollar due in part to government intervention, according to a new valuation assessment sent to the US Department of Commerce.
In the assessment conducted for an anti-subsidy investigation by the commerce department into light vehicle tire imports from Vietnam, the Treasury said the undervaluation was influenced by Vietnamese “government action on the exchange rate.”
The assessment is the first issued by the Treasury under a new US rule that allows the commerce department to consider currency undervaluation as a form of subsidy when determining anti-subsidy duties, potentially increasing them.
The department in June began probing dumping and unfair subsidy claims against tire imports from Taiwan, Vietnam, South Korea and Thailand. The probe was initially sought by United Steelworkers, which represents workers at many US tire plants.
Treasury’s determination that the Vietnamese dong is undervalued could increase the chances that it designates Hanoi a “currency manipulator” when it issues its long-delayed semi-annual currency report. Such a designation would require US Secretary of the Treasury Steven Mnuchin to seek bilateral consultations with Vietnam to try to correct the situation.
However, the two determinations use different methodologies and rely on different US statutes.
It would be possible for a currency to be determined as undervalued for the commerce department’s purposes, but still not meet the Treasury’s tests for manipulation under 1988 and 2015 foreign exchange laws, said Mark Sobel, a former Treasury and IMF official who is now US chairman for the Official Monetary and Financial Institutions Forum think tank.
In its assessment letter to the commerce department, the Treasury said Vietnam made US$22 billion state foreign exchange purchases last year, including through the State Bank of Vietnam, which pushed down Vietnam’s real effective exchange rate by 3.5 percent to 4.8 percent.
It said Hanoi’s action caused the dong exchange rate, which was a nominal 23,224 per US dollar last year, to be about 1,090 dong lower than levels consistent with equilibrium real exchange rates.
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