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New U.S. tax BAT to impact Vietnam exports

Vietnam’s exports to the United States might be impacted at least in the short term if America implements its border adjustment tax (BAT) as part of President Donald Trump’s plan to revise tax policy, a macroeconomic report said.

The BAT, if implemented, would cause significant disadvantages for countries exporting goods to the U.S., including Vietnam, said the report, which was prepared and distributed by MarketIntello and the Development and Policies Research Center (DEPOCEN).

America is Vietnam’s biggest market, the report said. It quoted figures of Vietnam’s General Department of Customs as saying that shipments to America made up nearly 22% of Vietnam’s total exports last year, the highest in more than 10 years.

Statistics of the department showed Vietnam’s export revenue amounted to US$176.63 billion last year, up 9% over 2015, and enjoyed a trade surplus of over US$2.52 billion. Vietnam got US$38.46 billion from export sales to America, leaping 14.9% year-on-year; followed by the European Union (EU) with US$33.97 billion.

The report pointed out effects of the BAT on Vietnamese exports would rely on a number of factors. It said given declining domestic demand, Vietnam’s economic growth this year should depend heavily on international trade.

The report said that with a share of about 42%, apparel and footwear were the most important goods Vietnam exported stateside, followed by mobile phones and accessories with a share of 11% and wooden products with 7%.

“These products are inputs for industries that are most affected by a BAT by strongly relying on imports. Generally, it will strongly depend on the substitutability of imported and U.S. domestic products as well as how U.S. consumers will react to increasing prices of imported goods,” the report said.

The report noted for Vietnam’s top export earners, products such as garments and electronic products could hardly be substituted by U.S. home products. “As a consequence, it can be expected that importing companies such as retail giant Walmart will pass on increasing prices to consumers and, thereby, rising inflation. Consumer reaction then will determine the change to import demand and, hence, Vietnamese exports in the short-run,” the report said.

To deal with the BAT, exporting countries are expected to use monetary policy to weaken their currencies against the U.S. dollar to maintain the competitiveness of their exports as a counter-measure to the 20% border tax.

The Vietnam dong is projected to fall 1.5-2% against the dollar owing to Vietnam’s stable trade balance, positive capital account and higher foreign exchange reserves. However, the report said it is difficult to predict the movement of the dong/dollar exchange rate in 2017 now since it is heavily dependent on U.S. economic policies during Trump’s presidency.