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US border tax may lower Vietnam’s exports

The border adjustment tax (BAT) imposed by the US may affect countries exporting goods to the US, including Vietnam. The aim of this tax is to increase revenues from imports and encourage firms to invest and produce domestically. America is Vietnam’s biggest market. Shipments to America made up nearly 22 per cent of Vietnam’s total exports last year, the highest in more than 10 years.

Vietnam’s revenue in export to the US was up nine per cent in 2016 over 2015. Apparel and footwear are the most important goods Vietnam exports to the US followed by mobile phones and accessories. Vietnam’s economic growth this year depends heavily on international trade. Rising prices of raw materials at the beginning of the year could make inroads into corporate profits as companies are unable to shift the burden of rising prices to domestic consumers if monetary policy is tightened to curb a recurrence of high inflation.

To deal with BAT, exporting countries are expected to use monetary policy to weaken their currencies against the US dollar to maintain the competitiveness of their exports. However, Vietnam is unlikely to devalue the currency much since it could pile pressure on inflation. As a consequence, Vietnamese products may lose their competitiveness in international markets.