07 January 2021

 

Vietnam

Predictions

  • UK trade deal will support efforts to attract foreign investment, while impact of potential US sanctions will be limited
  • Low COVID-19 rates will appeal to foreign firms, but risk of new wave of infections and broader business challenges will constrain investment in coming year
  • New US administration will seek to improve trade and defence ties with Hanoi, ensuring any punitive trade measures are only temporary

 

Event

The trade ministry signed a free trade agreement with the UK on 29 December, based on the same terms as the EU-Vietnam free trade agreement that took effect in August, including a commitment to cut tariffs on 99% of goods traded between the two countries over the next six years. The agreement took effect from 31 December. Separately, Prime Minister Nguyen Xuan Phuc spoke with US President Trump on 22 December, after Washington said Vietnam manipulates its currency to gain “unfair” trade advantages. Phuc denied these claims, but the US designation will nonetheless allow it to introduce sanctions after an ongoing investigation that concludes on 7 January, shortly before President-elect Biden takes office on 20 January.

Context

The currency manipulator designation comes after the US opened an investigation last year into whether Vietnam devalued its currency to make products cheaper for foreign buyers (see our 7 October report). This is largely motivated by the fact that the US is Vietnam’s largest export market, and US imports from the country have risen significantly in recent years, leading to a trade deficit of USD 55.8 billion in 2019, 41% higher than the previous year. More recently, this increase has been exacerbated by firms sourcing more products from Vietnam instead of China in order to avoid US tariffs…

Source: IMF
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