There’s a push from both Vietnamese officials and special interest groups to change the country’s status. Doing so would be a mistake.
The Commerce Department held a hearing on Wednesday as part of an ongoing review of whether Vietnam should be granted “market economy” status, a move that would reduce tariffs placed on imports from the Southeast Asian nation.
The review began in October 2023, and the Commerce Department is expected to announce a decision by mid-July. Vietnamese officials are pushing hard for the change, arguing it will help the communist nation avoid severe anti-dumping duties currently in place that modulate its exports to the United States. The National Retail Federation also is supportive, likely because it would make imports from Vietnam even cheaper.
But there’s a big catch: Vietnam doesn’t actually meet the criteria for non-market economy status.
There are six factors that the Commerce Department is required to consider when granting market status. Vietnam’s case for meeting those requirements is flimsy. As the Alliance for American Manufacturing wrote to Commerce Secretary Gina Raimondo back in December, Vietnam is a socialist republic with a one-party system led by the Communist Party of Vietnam.
In the letter, we cited several specific reasons why Vietnam cannot be understood to demonstrate the characteristics of a market economy, including:
- Vietnamese currency is not freely convertible. Vietnam continues to restrict its currency and capital accounts and influence the foreign exchange market. Vietnam also manipulates the value of its currency, and the Treasury Department has returned Vietnam to its currency manipulation monitoring list.
- Wages in Vietnam are not determined by free bargaining between labor and management. Workers in Vietnam lack fundamental rights to organize, bargain and strike.
- Vietnam restricts joint ventures and investments from foreign firms. Much of the foreign investment that is permitted in Vietnam comes from China, which enables the Chinese Communist Party to exert control over businesses operating in Vietnam and, by extension, over sectors of Vietnam’s economy.
- Vietnam’s economy is replete with state-owned enterprises and its government influence over the means of production and resources in the country is extensive.
- The commercial banking sector is state-controlled and lacks the traits of a competitive banking system.
- Vietnam exercises significant control over the allocation of resources, prices, and the output decisions of business. As a result, the private sector in Vietnam remains limited by and disadvantaged by the prevalence of state-controlled enterprises and central government control of the financial sector.
And lastly, graduating Vietnam to a market economy status would jeopardize U.S. economic and national security interests. The Vietnamese government is formally connected to China politically, defensively, and economically — and there’s evidence China is using Vietnam as a hub for circumvention of U.S. laws like the Uyghur Forced Labor Prevention Act and various trade enforcement mechanisms.
AAM isn’t alone in opposing granting Vietnam market economy status. A slew of American manufacturers and the United Steelworkers (USW) union also have opposed any change to Vietnam’s market economy status, as a modification of Vietnam’s non-market economy designation would weaken trade remedies for U.S. industries confronted by unfair trade. The Southern Shrimp Alliance, not a group that typically weighs in on the kind of trade matters we care about, also has publicly opposed the change.
America’s steelworkers are all too familiar with China’s practice of dumping its steel products into the U.S. via a third-party country. Many of China’s government-owned companies are heavily invested in Vietnam and already have been shipping products into the U.S. via Vietnam; they likely would benefit even further from Vietnam’s change to a market economy — at the expense of American workers and manufacturers.
Roy Houseman, legislative director of the USW, said that the change would “erode our domestic manufacturing base, undermine U.S. supply chain resiliency and reinforce Vietnam’s role as a conduit for an influx of unfairly traded Chinese goods.”
Members of Congress, both in the House and Senate, have echoed these same sentiments in their own letters to Raimondo, arguing that Chinese-backed companies in Vietnam would certainly take advantage of the change by more easily avoiding U.S. tariffs.
“We must not reinforce Vietnam’s position as a vector for a flood of unfairly traded Chinese goods circumventing existing trade measures and Uyghur Forced Labor Prevention Act (UFLPA) rules against forced labor by China,” AAM wrote in our letter to Raimondo. “Any wishful benefits for U.S. foreign policy are far outweighed by the very real economic costs that would be incurred, including significant loss of U.S. jobs nationwide while undermining U.S. supply chain resiliency.”