CPA outlined in a letter to President Biden this month why the administration should not grant market economy status to Vietnam. The letter was part of Commerce’s 270 day public comment period.
In it, CPA likened the move to granting permanent normalized trade relations with China some 22 years ago.
“The misguided effort to classify the Socialist Republic of Vietnam as a market economy is similar to the failed thinking that led to granting permanent normal trade relations status to China — a diplomacy-driven groupthink that fake trade liberalization will persuade a dedicated communist country to become capitalist, democratic, and liberalized,” the letter states. “It did not work with China. And it won’t work with the Socialist Republic of Vietnam.”
READ: CPA CEO Michael Stumo’s Recent Op-Ed at The Washington Times on Vietnam’s Market Status Consideration
This decision has the potential to exacerbate an increasingly one-sided trade relationship.
Vietnam is a country of some 100 million people with a gross domestic product of nearly $370
billion. The U.S. trade relationship with Vietnam has been singularly one-sided, and growing more so since 2019 as Chinese companies moved in to sidestep extra costs associated with tariffs and the Uyghur Forced Labor law, among other things.
Since 1992, the United States has spent a net $734 billion dollars (measured in 2023 dollars) to
Vietnam for goods imports. Some 50% of that amount, $368 billion, has been spent since 2018.
The goods deficit with Vietnam has not been offset by the services trade, the one thing that makes the U.S. trade deficit not look as bad as it is. Getting Vietnam to buy more U.S. stocks, come to the U.S. on business trips, download Microsoft Word, or visit Disney World, does nothing to reduce the trade gap.
CPA’s comment letter states that “building up the Socialist Republic of Vietnam is building up another Communist regime – a result that is incompatible with the United States’ commitment to supporting democracy.To believe our doing so will lead Vietnam toward democracy at home and participation in the Western democratic world order is a fool’s errand, as vividly demonstrated by our pursuit of that belief, and its utter failure, in the case of the People’s Republic of China.”
Vietnam has benefited from the U.S. economy, but it has equally benefited from China. In fact, its increased access to the U.S. may be due, in large part, to Chinese multinationals making everything from solar panels to furniture, LED light bulbs to kitchen cabinets, setting up shop there.
For CPA, granting market economy status to Vietnam won’t necessarily align the country with the United States. In September, the United States became a “comprehensive strategic partner” of Vietnam, only to be trumped three months later by China, with whom Vietnam agreed “to build a Vietnam-China community “with a shared future.”
“As a state-managed economy with U.S. exports worth over a quarter of its GDP, and a trade surplus of 7.5% of its GDP, Vietnam is building a hugely unbalanced economy, somewhat similar to China’s, and its continued growth will only come at the expense of global demand, U.S. jobs, and the U.S. trade balance,” said CPA chief economist Jeff Ferry.
China Derisking? Not Really. Some Goods Now Sourced from Chinese Companies in Vietnam
Decoupling or derisking? One means vacating the premises in China in favor of other sources of manufactured goods. Derisking means the same, only is more of a decoupling-lite, meaning instead of sourcing 1,000 widgets from mainland China partners, you source 660 of them instead. Where are the rest coming from? Well, increasingly they are coming from Southeast Asia and Mexico. Only, many times they are coming from the same Chinese company. China is outsourcing to keep its business relationships intact, and to protect market share.
One of its go-to partners today is Vietnam.
Robin Brooks, chief economist for the Institute of International Finance, an association of global financial services firms, said supply chains are still in the hands of Chinese companies but have been “rejiggered” to Vietnam and elsewhere.
China’s trade surplus with Vietnam was around $25 billion in 2019, the first year of Section 301 tariffs. It hit a high of around $50 billion in 2021 before falling slightly due to lockdown policies to fight Covid.
China’s trade surplus with Mexico doubled from around $23 billion to more than $53 billion today, Brooks noted.
The U.S. posted a record breaking $122.12 billion goods trade deficit with Vietnam in 2022, according to Census data. Last year’s numbers should come in a little less, at around $109 billion for 2023.
The U.S. sells little to Vietnam, whose currency is worth next to nothing compared to the dollar, giving them very little purchasing power.
Therefore, thanks to its proximity to China and its second choice after China for many multinational exporters, Vietnam has had a goods gap with the U.S. that has grown steadily over the years. But from 2016 and 2018, it rose from around $31 billion to $39 billion. After China tariffs were enacted, it jumped by $16 billion to $55 billion in 2019. It has doubled ever since.
A lot of this is China manufacturing outsourcing to Vietnam, or transhipping to Vietnam and using the Southeast Asian nation as an assembler of finished products.
Vietnam is currently under investigation for circumventing tariffs of Chinese manufacturers of kitchen cabinets, and four China solar companies there were recently subject to anti-dumping and countervailing duties by Commerce.
Late October, Commerce said it would take up the issue of whether to include Vietnam as a market economy. A decision will be made sometime this summer, no earlier than July 19. When a country is granted market economy status, it may face lower anti-dumping and countervailing duties in cases where their companies lost trade disputes against U.S. competitors. Companies from market economies also find it easier to access the U.S. market, potentially leading to increased exports and business opportunities. Vietnam wants this, obviously. But so do companies that export to the U.S. from Vietnam, whether they are American companies with factories there, or Chinese ones.
China is not considered a market economy, yet the percentage of state owned companies as a share of national GDP is similar to Vietnam’s.
By the end of 2021, state run companies in Vietnam accounted for 26% of its GDP. China ranges from 25% to 30%.
Vietnam’s state component is on par with China’s, making the economy of little difference in terms of its market status. Plus Vietnam has a much thinner securities market, too.
VIETNAM'S 5 LARGEST COMPANIES
Of Vietnam’s five largest companies, only one is private. VinGroup is a conglomerate involved in everything from real estate to electronics manufacturing. It is traded on the local stock exchange. The other four companies are state-run, or majority foreign owned.
If the Department of Commerce wrongly determines that Vietnam is a market economy, the United States would no longer have the ability to apply the full force of the U.S. trade cheating laws to address the market distortions there caused by interference from the Vietnamese government and by Chinese companies operating there. No other country in the region has become a go-to manufacturing hub for China outsourcing like Vietnam. To avoid losing business with U.S. importers, many Chinese companies have either set up shop in Vietnam, or are using it for final assembly and – in some instances – labeling the product as being manufactured in Vietnam. Are we to believe private Vietnamese actors would have a problem with this arrangement?
Vietnam: China’s Main Outpost in SE Asia.
CPA outlined in a letter to President Biden this month why the administration should not grant market economy status to Vietnam. The letter was part of Commerce’s 270 day public comment period.
In it, CPA likened the move to granting permanent normalized trade relations with China some 22 years ago.
“The misguided effort to classify the Socialist Republic of Vietnam as a market economy is similar to the failed thinking that led to granting permanent normal trade relations status to China — a diplomacy-driven groupthink that fake trade liberalization will persuade a dedicated communist country to become capitalist, democratic, and liberalized,” the letter states. “It did not work with China. And it won’t work with the Socialist Republic of Vietnam.”
READ: CPA CEO Michael Stumo’s Recent Op-Ed at The Washington Times on Vietnam’s Market Status Consideration
This decision has the potential to exacerbate an increasingly one-sided trade relationship.
Vietnam is a country of some 100 million people with a gross domestic product of nearly $370
billion. The U.S. trade relationship with Vietnam has been singularly one-sided, and growing more so since 2019 as Chinese companies moved in to sidestep extra costs associated with tariffs and the Uyghur Forced Labor law, among other things.
Since 1992, the United States has spent a net $734 billion dollars (measured in 2023 dollars) to
Vietnam for goods imports. Some 50% of that amount, $368 billion, has been spent since 2018.
The goods deficit with Vietnam has not been offset by the services trade, the one thing that makes the U.S. trade deficit not look as bad as it is. Getting Vietnam to buy more U.S. stocks, come to the U.S. on business trips, download Microsoft Word, or visit Disney World, does nothing to reduce the trade gap.
CPA’s comment letter states that “building up the Socialist Republic of Vietnam is building up another Communist regime – a result that is incompatible with the United States’ commitment to supporting democracy.To believe our doing so will lead Vietnam toward democracy at home and participation in the Western democratic world order is a fool’s errand, as vividly demonstrated by our pursuit of that belief, and its utter failure, in the case of the People’s Republic of China.”
Vietnam has benefited from the U.S. economy, but it has equally benefited from China. In fact, its increased access to the U.S. may be due, in large part, to Chinese multinationals making everything from solar panels to furniture, LED light bulbs to kitchen cabinets, setting up shop there.
For CPA, granting market economy status to Vietnam won’t necessarily align the country with the United States. In September, the United States became a “comprehensive strategic partner” of Vietnam, only to be trumped three months later by China, with whom Vietnam agreed “to build a Vietnam-China community “with a shared future.”
“As a state-managed economy with U.S. exports worth over a quarter of its GDP, and a trade surplus of 7.5% of its GDP, Vietnam is building a hugely unbalanced economy, somewhat similar to China’s, and its continued growth will only come at the expense of global demand, U.S. jobs, and the U.S. trade balance,” said CPA chief economist Jeff Ferry.
CPA to Biden Administration: Do Not Grant Socialist Republic of Vietnam “Market Economy Status”
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