Commerce’s Mistaken Decision to Continue Vietnam’s Nonmarket Economy Status
The Department of Commerce’s decision makes clear that there will be no substantive changes in the US-Vietnam bilateral economic relationship. This is an economic and strategic mistake.
Late last week, the US Department of Commerce announced that it had denied Vietnam’s petition to change its status to a market economy from a “nonmarket economy” for antidumping and countervailing duties calculations, which generally inflates duties on products deemed to be dumped and/or subsidized. Vietnam filed the petition for reclassification on the eve of President Biden’s September 2023 visit to Hanoi, during which the two countries emphasized the need to enhance the bilateral relationship and strengthen trade and investment ties.
Despite last fall’s lofty rhetoric, however, the Commerce Department’s decision makes clear that there will be no substantive changes in the bilateral economic relationship. This is an economic and strategic mistake.
First a little background: In the early 1980s, Vietnam’s centrally planned economy was in disarray. It was one of the poorest countries in the world, and inflation was rampant. Shortly thereafter, however, Vietnam began a series of market-oriented economic reforms that proved wildly successful. According to a 2018 International Monetary Fund report, the reforms lifted about 40 million people out of poverty, with the poverty rate dropping from nearly 60 percent to 14 percent by 2014. The report further noted that between 1990 and 2017, Vietnam’s economy was the world’s second-fastest growing economy, trailing only China.
Amid these reforms, Congress in 2001 granted Hanoi normal trade relations status, but just a year later, the United States classified Vietnam as an nonmarket economy during an antidumping case involving Vietnamese catfish. In 2007, the United States supported Vietnam’s accession to the World Trade Organization (WTO) but insisted that Hanoi’s nonmarket economy status continue for 12 years or until the country’s policies moved in a more market-oriented direction. Seventeen years later, the Commerce Department now states that despite some reforms there is still too much government intervention in ways that “distort Vietnamese prices and costs and ultimately renders them unusable for the purpose of antidumping duties.” Though the Commerce Department claims the process for reaching its decision is quasi-judicial and justified it on the basis of a six-factor test, decisions about nonmarket economy status ultimately are—as Cato scholars have previously noted—largely arbitrary and political.
Economically, the decision will continue the practice of inflating antidumping duties on products from Vietnam, which will burden American consumers with higher prices while fostering further political cronyism and uncertainty. Indeed, the most vociferous opponents of reclassification were protectionist legislators and those politicians representing businesses that profit from the inflated antidumping and countervailing due to Vietnam’s nonmarket economy status.
More broadly, the Commerce Department’s decision is a strategic misstep in the context of ongoing tensions between Washington and Beijing. In recent years, particularly since the Trump-era tariffs on Chinese imports (which the Biden administration has maintained), Vietnam has emerged as a key alternative manufacturing and supply chain hub, especially for tech products. This shift is largely driven by companies seeking to diversify their operations away from China and mitigate potential geopolitical risks. Last year Apple, for instance, announced it would move production of its popular MacBooks from China into Vietnam. And earlier this year, Tim Cook, the company’s CEO, visited Hanoi where he announced more component parts would be purchased from Vietnamese firms.
Today, Vietnam is the eighth-largest trading partner for the United States—and its importance is rising at a rapid clip. Indeed, as Figure 1 demonstrates, two-way trade volumes between the United States and Vietnam have increased dramatically in recent years.
As Scott Lincicome and I noted in a 2023 Cato paper recommending better approaches to US-China economic tensions, Washington should prioritize cultivating deeper trade and investment ties with Asian countries, including Vietnam. Rejoining the Comprehensive and Progressive Trans-Pacific Partnership, of which Vietnam is a member, is a wise idea. So, too, is reclassifying Vietnam’s nonmarket economy status.
Rhetorically, most of Washington’s policy community is rightly worried about several Chinese economic practices. Yet when policymakers have an opportunity to strengthen the US’s economic and strategic position vis-à-vis China, shortsighted protectionism and parochialism continue to triumph.