The overall US trade deficit is largely caused by excess demand and a strong dollar.
#Vietnamese exchange rate full#
A large tax cut and full employment in the United States in 2017 increased demand and contributed to the growing trade deficit.
The US trade deficit with all countries grew from US$490 billion in 2014 to US$617 billion in 2019. The dollar was strong into 2019 due to Federal Reserve interest rate increases from near zero before 2016 to more than 2 per cent in late 2019 - at a time when EU and Japanese interest rates were much lower. The values of other currencies - such as the euro and renminbi - are also important for Vietnam. Neither the trade surplus, current account balance or foreign exchange reserves show any sign of significant or increasing currency manipulation. The balance on goods and services in 2020 through September was US$8 billion. The IMF shows a current account surplus of 4.9 per cent of GDP in 2014 falling to 2.2 per cent of GDP in 2019.
The value added of the FDI exports is typically very low and a lot of the ‘Vietnamese’ surplus with the United States reflects imported inputs from the rest of Asia. But imports of goods also grew quickly, from US$148 billion in 2014 to US$253 billion in 2019 - falling slightly (0.8 per cent) in 2020. They even grew in 2020, by 2 per cent through September. Exports of goods rose from US$150 billion in 2014 to US$264 billion in 2019. This has led to the migration of export production to Vietnam. With the more recent trade war sparked by US President Donald Trump, the policy changed to an ‘ABC’ (anywhere but China) strategy, and very quickly. In response to rising tensions with China and its rising labour costs, many companies adopted a ‘China+1’ strategy earlier in the last decade - often locating assembly factories for garments, shoes and electronics in Vietnam. If Vietnam is manipulating its currency, it is keeping it overvalued and making it harder to export, not easier. Under purchasing power economic theory, exchange rates reflect inflation differentials. If Vietnam’s currency had depreciated by the amount of Vietnam’s ‘extra’ inflation, it would have depreciated by 38 per cent and the dong should have depreciated to more than 25,000. Vietnam’s GDP deflator grew 62 per cent from 2010 to 2019 while the US deflator was up 17 per cent. In 2019, with the overall modest trade surplus, it was 23,050 and is little changed for most of 2020.īut the inflation differential more than explained the dong’s movement. In 2010, there was a trade deficit and the exchange rate averaged 18,613 dong to the dollar. One can also look at the evolution of the exchange rate. Another test would be if foreign exchange reserves were ‘excessive’ and at 3–4 months of imports, they are well within the range of normal holdings. Most other years this decade the trade balances have been smaller or even negative. That is close to balance - the (relatively) large 2019 trade surplus was only 4 per cent of imports. It is the overall trade balance which would be relevant. This is driven by a growing bilateral trade surplus with the United States - a variable of special concern to the current White House but to very few economists. The US Treasury is investigating whether Vietnam is manipulating (over-devaluing) its currency. dollar became an important international reserve currency after the First World War, and displaced the pound sterling as the world's primary reserve currency by the Bretton Woods Agreement towards the end of the Second World War.Economics, Politics and Public Policy in East Asia and the PacificĪuthor: David Dapice, Harvard Kennedy School Since 1971, all links to gold have been repealed. From 1934, its equivalence to gold was revised to $35 per troy ounce. The Gold Standard Act of 1900 linked the dollar solely to gold. dollar was originally defined under a bimetallic standard of 371.25 grains fine silver or, from 1837, 23.22 grains fine gold, or $20.67 per troy ounce. The monetary policy of the United States is conducted by the Federal Reserve System, which acts as the nation's central bank.
banknotes are issued in the form of Federal Reserve Notes, popularly called greenbacks due to their predominantly green color. dollar at par with the Spanish silver dollar, divided it into 100 cents, and authorized the minting of coins denominated in dollars and cents. The Coinage Act of 1792 introduced the U.S. The United States dollar is the official currency of the United States and several other countries.
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