Vietnam remains one of the few countries in Asia not to have yet congratulated Joe Biden on his November 3 election victory.
But the apparent diplomatic slight reveals less about Hanoi’s view of the US president-elect and more about its desire not to anger outgoing US President Donald Trump in his final weeks in office.
Last month, the Office of the US Trade Representative (USTR) announced that it had opened an investigation into whether Hanoi has engaged in currency manipulation, as well as a probe into its alleged export of illegally-sourced timber.
In September, a US Treasury Department inquiry concluded that Vietnam had manipulated its currency in relation to its export of vehicle tires. The US Commerce Department this month slapped a preliminary anti-subsidy tariff on Vietnam’s tire exports, worth around US$470 million in 2019.
US Secretary of Commerce Wilbur Ross described the measure as “an important step forward for the ‘America First’ trade agenda,” a policy driven by the Trump administration’s fixation on reducing America’s trade deficit.
Vietnam’s trade surplus with the US rose from $32 billion in 2016, the year before Trump took office, to $49.4 billion in the first nine months of 2020, one of the world’s highest.
Last month, Vietnamese Prime Minister Nguyen Xuan Phuc reportedly told a Trump aide that the Trump administration needed to “have a more objective assessment of reality in Vietnam.”
Accusations of currency manipulation are a “big concern” for Vietnamese policymakers as “they do not have a lot of options to reduce the trade deficit to a substantial level,” says Nguyen Khac Giang, a PhD candidate at New Zealand’s Victoria University.
“The best Hanoi can do,” he added, “is to have more communication channels with responsible US agencies, deal effectively with the trans-shipment problems, and perhaps buy more appropriate US products and call for more US investment into the country.”
Hanoi will now aim to keep its head down for the next two months and hope that a Biden administration will reverse any punitive measures Trump imposes as parting salvos during his waning days in office, which may or may not be wishful thinking.
Although most analysts expect the Biden administration to be less preoccupied with bilateral trade deficits, his senior foreign policy nominees have voiced their support for measures against currency manipulation and “foreign cheating [that] poses a threat to American jobs.”
US National Security Adviser Robert O’Brien, who visited Hanoi last weekend, reportedly told the Vietnamese government it needs to stop re-routing Chinese-made products and purchase a greater quantity of US goods, Washington’s line since early 2017.
In a press interview, O’Brien appeared to suggest that reducing the trade surplus “could be the basis” for reversing the US’ tariff decision on Vietnam’s tire exports.
Hanoi has previously rushed to announce deals to import more US-made goods to tamp down US criticism. Many of the deals were signed on state visits to give Trump the trade-win publicity he desires, so it’s not clear old deals will placate the current US probes into Vietnam’s trade practices.
During Trump’s first year in office, state visits by Prime Minister Phuc and then-President Tran Dai Quang saw Vietnamese officials sign contracts for US goods and services worth billions of dollars.
In early 2019, on the sidelines of Trump’s second-round peace talks with North Korea that Hanoi hosted, Vietnam’s low-cost airline Vietjet agreed to purchase an additional 100 737 MAX airplanes from American aerospace giant Boeing, a deal worth $12.7 billion.
The deals made in 2017 “bundled together all sorts of agreements – already made, projected, and signed during the visit – in an ambiguous time frame, to reach an impressive figure to please Donald Trump,” said Carl Thayer, emeritus professor at the University of New South Wales in Australia.
Some of the US goods purchased on these occasions were necessary for Vietnam’s development, “but it is certain that the need to comfort Trump’s transactional approach plays a big role,” says Giang.
Indeed, the US$12.7bn deal to import 737 MAX airplanes from Boeing later collapsed over safety concerns, contributing to Vietnam’s still strong trade surplus with the US.
Given his mercurial character, Trump has been a difficult leader for Vietnam to predict. To be sure, Vietnam has appreciated his more assertive policy towards China, which has increasingly threatened Vietnam’s claims in the South China Sea.
Just weeks after lavishing praise on the Vietnamese government amid his North Korea peace talks in early 2019, Trump said during a Fox News interview that Vietnam is the “worst abuser” of US trade, a comment that left Vietnamese diplomats scrambling for clarity from their US counterparts.
There is also frustration in Hanoi over the Trump administration’s refusal to understand that Washington is actually the architect of Vietnam’s large trade surplus with the US, which rose from $32 billion in 2016 to $38.3 billion in 2017, and then to $39.4 billion in 2018.
But Vietnam’s surplus exploded in 2019 to $55.7 billion, chiefly because of the US-China trade war started by Trump the previous year, which prompted manufacturers to move their operations from China to Vietnam to avoid high US tariffs on China-made goods.
Trump’s large income tax cuts introduced in 2017 and a marked rise in US employment, up until the pandemic struck earlier this year, translated into increased demand for Vietnamese imports among American consumers, as Vietnam has emerged as a new hub for tech manufacturing since 2017.
The US trade deficit with all countries rose from $490 billion in 2014 to $617 billion in 2019, driven largely by “excess demand and a strong dollar,” according to David Dapice, a senior economist at Harvard University writing earlier this month in East Asia Forum.
What’s more, Dapice argued that given Vietnam’s economic development over the past decade, its currency is actually “overvalued” at the moment, making it harder to export goods and therefore the opposite situation of what Hanoi would try to artificially engineer. The Vietnamese dong is currently valued at $23,200 to the US dollar.
He added that “neither the trade surplus, current account balance or foreign exchange reserves show any sign of significant or increasing [dong] currency manipulation.”
Other analysts contest that assessment and reckon that the US Trade Representative must have an evidence-based case against Vietnam if it is willing to start a full-scale investigation.
US investigators will more likely find malfeasance in Vietnam’s export of illegally-harvested timber, with total timber exports worth around $3.7 billion last year to the Vietnamese economy.
Although Vietnam joined the Voluntary Partnership Agreement with the EU in 2018, a mechanism to ensure that its timber is legally-sourced, there are ample reports of timber being illegally-harvested in neighboring Cambodia and shipped as Vietnam’s exports.
Some pundits have speculated that US probes into Vietnam’s timber industry are really about America’s domestic politics, since North Carolina, a major furniture-manufacturing hub, was considered a battleground state heading into the US presidential election.
This has generally been the case with many of the import deals Vietnam has signed with the US since 2017. “If you look at what Vietnam actually buys – from cotton to soybeans – most come from the states [in the US] which have been more or less pro-Trump,” Giang said.
Whether that will fundamentally change under the Biden administration waits to be seen. The prevailing view among Vietnam watchers is that the next US president will go easier on Vietnam over issues like currency manipulation and trade surpluses.
The Biden administration is likely to “adopt less aggressive policies on trade, and that means they may moderate on trade with Vietnam and may pause or cancel the currency manipulation investigation,” Le Hong Hiep, a research fellow at the ISEAS-Yusof Ishak Institute in Singapore, told regional media this month.
Perhaps. But Biden didn’t win the US presidential election by a landslide and he inherits a deeply divided nation, especially in those states which benefit from Vietnamese purchases. Indeed, North Carolina went to Trump but he only won by 1.3 percentage points.
Speaking in September, Biden’s pick as his secretary of state, Antony Blinken, said that the Biden administration would still “use tariffs when they’re needed, but backed by a strategy and a plan.”
Blinken also vowed to “aggressively enforce American trade laws any time foreign cheating poses a threat to American jobs.”
Biden’s appointed national security advisor, Jake Sullivan, who has argued that provisions against currency manipulation should be part of US policy, is even tougher-sounding on trade issues.
In a co-written essay for Foreign Policy in February, Sullivan sounded somewhat like Trump in saying that America needed a new economy policy in foreign affairs which must “involve a laser focus on what improves wages and creates high-paying jobs in the United States, rather than making the world safe for corporate investment.”
“Provisions against currency manipulation,” he added, “would not only help the American middle class but also the United States’ strategic position by constraining China’s capacity to fund efforts like its Belt and Road Initiative (BRI),” referring to the Beijing’s trillion-dollar overseas investment project.
According to University of New South Wales’ Thayer, Sullivan’s comments were likely directed at China but will nevertheless “be applied against Vietnam as well.”
Vietnamese officials would likely prefer to start communicating with Biden’s transition team but at the same time don’t want to irk Trump at a delicate political moment.
Prime Minister Phuc was the first Southeast Asian leader to speak to Trump after his victory in 2016, a call that took place a month before Trump’s inauguration. Phuc visited Washington just five months later and was the first Southeast Asian leader to visit the White House.
Vietnam’s ruling Communist Party will be engaged in its quinquennial National Congress, at which senior officials are rotated and politicians busy with horse-trading, at the time of Biden’s January 20 inauguration.
Phuc is tipped to take the Party chief role, which may prevent him from diplomatic engagements, although he may put his foreign experience to better use if he instead becomes president. Vietnam’s Foreign Ministry is expected to undergo a shake-up and Hanoi’s foreign policy over the coming five years will be hotly debated at the National Congress.
If this was a normal presidential transition in America, Vietnamese officials would by now be taking every measure to communicate with Biden’s incoming team and set a tone before his inauguration.
This time, however, not only has Hanoi failed to even acknowledge the victory of the next US president, all diplomatic overtures to Biden’s camp will have to wait until after January, lest Vietnam stirs Trump’s trade rage.
This means that any renewal or reset of US-Vietnam relations under Biden will get off to a slower start than they did under Trump, with potentially adverse implications for Vietnam’s trade and economy in the Trump-controlled interim.