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What’s wrong with US Treasury claim of Vietnamese undervaluation

Summary:
TweetAugust 27, 2020 — The US Treasury’s tendentious interpretation of the IMF’s External Balance Approach this week found a 4.7 % undervaluation of Vietnam’s currency.  It may pave the way for the US Commerce Department to impose countervailing duties (in a case involving the tire market), for the first time in a currency case. See Mark Sobel’s useful update of August 27. The Treasury claimed to find undervaluation despite small Vietnamese current account surpluses and fx reserves equal to only four months of imports. This finding is an ominous step in a predictably misguided US movement to use allegations of trading partners’ currency manipulation to justify protectionism.

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August 27, 2020 — The US Treasury’s tendentious interpretation of the IMF’s External Balance Approach this week found a 4.7 % undervaluation of Vietnam’s currency.  It may pave the way for the US Commerce Department to impose countervailing duties (in a case involving the tire market), for the first time in a currency case. See Mark Sobel’s useful update of August 27. The Treasury claimed to find undervaluation despite small Vietnamese current account surpluses and fx reserves equal to only four months of imports. This finding is an ominous step in a predictably misguided US movement to use allegations of trading partners’ currency manipulation to justify protectionism.

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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