US-China trade war: Proposing to devalue the Vietnamese dong (VND)

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The announcement of the Quarterly Report independent assessment of Vietnam’s macroeconomic policies held by VEPR.

At the announcement of the Quarterly Report independent assessment of Vietnam’s macroeconomic policies held on 11st July 2018, the Vietnam Institute for Economic and Policy Research (VEPR) proposed this issue.

Explaining this issue, Dr. Nguyen Duc Thanh, President of VEPR, said that Vietnam imports raw materials from China to process and export, the adjustment of exchange rate will bring benefits for importers in this market. In addition, importers will gain benefits from exporting to the US. The taking advantage of these two big markets could improve the production status and trade balance.

Currently, the US and China are the two important trading partners with Vietnam. China is the largest import market with turnover of US$ 31.1 billion, with key commodities including fabric, phones and accessories and accounting for one fourth of total import turnover. China replaced South Korea becoming Vietnam's biggest trade partner.

For export, the US is Vietnam’s largest exporter with export turnover of US$ 21.5 billion in the first half of 2018, increasing by 9.2% compared to the same period in 2017 and accounting for one fifth of Vietnam’s total export turnover.

According to the President of VEPR, currently the VND has been pegged to the USD. When the CNY sharply depreciated, and the USD showed signs of price appreciation, Vietnam's trade balance will be greatly impacted due to cheap Chinese goods massively flowing into the domestic market.

“In the coming time, the exchange rate will still suffer from pressure in the context of international financial markets showing concerns about the escalation of the US-China trade war. Viet Nam should develop a policy to devalue the VND against USD at a moderate level, and lower than the devaluation of the CNY against USD to gain benefits and improve the production status,” Mr. Thanh recommended.

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For this issue, economist Nguyen Tri Hieu said that the US-China Trade war is one of causes of sudden exchange rate fluctuations in June 2018.

In the first 5 months of 2018, the exchange rate was stable, but in June the exchange rate sharply fluctuated, affecting the stock market and real estate market. Therefore, Mr. Hieu recommended that monetary adjustment policy in the coming time should be carefully developed.

Economist Pham Chi Lan said that the US-China trade war could change the investment flow into Vietnam. Many investors may invest in fields that Vietnam does not expect. Thereby, the competent agencies need to carefully select projects when granting investment licenses.