As the US warns of further ratcheting of tariffs up to 25% (from the originally threatened 10%) on $200bn of Chinese imports (beyond the $34bn already imposed and a further $16bn that may come into effect later today) it’s worth reviewing the US policy on FX manipulation, consider its impact on the global economy, and - as many will be worse-off in this brinkmanship - identify any that stand to gain from these escalating tariff threats.
The US has three official criteria for identifying a currency manipulator: a bilateral surplus above $20bn with the US, a current account surplus above 3% of GDP, and currency intervention exceeding 2% of GDP. But evidently there are at least a few more important factors: be big enough to be painted as a public threat to the common US citizen, eschew intellectual property rights and perhaps be a country that a certain head of state is able to find and name on a map like China, Mexico and Canada for example. These factors are almost perfectly exemplified by yesterday’s forecast beating earnings from Apple yesterday: which despite earnings rising 40% it was still dethroned as top global smartphone shipper by China’s Huawei during the same period.
The importance of these secondary factors is clear from even a cursory look at other culpable countries. Vietnam, for example, has around a 7% current account surplus, currency intervention activity recently has sharply risen to around 7% of GDP also, and its bilateral surplus is fast approaching $40bn. So with regards to the technical indicators it is in breach of all three by a factor of 200% or more. Following around 4 years of allowing a weakening currency Vietnam is now actively holding its dong down and has amassed almost 25% of GDP in foreign currency reserves - doubling to over $60bn in the past 3 years. Its currency weakened in the face of broader dollar strength and concern from greater competition from China as its currency also weakened.
If Vietnam can keep out of the limelight its $50bn or so in exports to the US it shouldn’t be at risk and the ongoing trade disputes between the US and Vietnam’s larger neighbour may in fact be a boost to Vietnam-US trade as it draws business away from China. That is, of course, assuming it avoids tariffs from both the US and its Asian neighbours; who no doubt see how the weak dong is forcing their excess savings elsewhere. Not that the region is as awry with protectionist rhetoric but they certainly know the opportunities and threats arising from Vietnam’s growth path and policies - because it's the same path they once walked a few decades ago.