The United States has put Switzerland and Vietnam on a watch list for currency manipulation

The U.S. Treasury Department on Wednesday declared Vietnam and Switzerland currency manipulators and put China and nine other countries on a watch list. This is the first such action since the United States designated China a currency manipulator in August 2019.

In its annual report, the U.S. Treasury said Vietnam and Switzerland were among the countries that met all three indicators for currency manipulators. Once the United States is identified as a currency manipulator, the United States will enter into special negotiations with both countries next year. If they fail to address U.S. concerns effectively, the United States will take further action to impose economic sanctions on them.

The Trump administration lifted its designation of China as a currency manipulator after the U.S. reached a landmark trade agreement with China in January.

In addition to China, Japan, South Korea, Germany, Italy, Singapore, Malaysia, Taiwan, Thailand and India are on the watch list. Only Taiwan, Thailand and India are newcomers to the list, while the others have been on it for nearly a year.

The Trump administration began an investigation into Vietnam’s trade practices in October, looking at whether the country devalued its currency, the dong, to give its exports an unfair price advantage.

Last month, the United States imposed some tariffs on Vietnamese tires, citing the low value of the Vietnamese currency.

The U.S. Treasury Department’s annual report says Vietnam’s bilateral trade surplus with the United States has continued to grow, mainly because of long-term and large-scale intervention by the Vietnamese monetary authorities to prevent the dong’s appreciation, which has increased significantly in the recent period.

A similar problem exists in Switzerland, where the authorities have resorted to unilateral currency intervention to prevent the appreciation of the Swiss franc and reduce the risk of deflation.

Vietnam is the thirteenth largest trading partner of the United States and Switzerland is sixteenth.

To be identified as a currency manipulator, a country must meet at least three criteria: a trade surplus with the United States of more than $20 billion; The level of foreign exchange intervention is above 2% of GDP; The global current account surplus exceeds 2 per cent of GDP.

Brad Setser, a senior fellow at the Council on Foreign Relations, used Treasury Department data to come to the same conclusion that Vietnam, Switzerland and Thailand did hit the currency manipulator threshold in the first two quarters of this year.

Taiwan also hit all three criteria in the second quarter, but only slightly in terms of currency intervention and was therefore not named a currency manipulator but placed on a watch list, According to Mr Seser’s research.

But as global supply chains shift from China to these countries, Taiwan and Vietnam have also seen their trade surpluses with the US widen. Taiwan’s central bank spent $3.9bn in the first half of the year to stem the rise of the Taiwan dollar.