USD: The next US ‘deal’ – Commerzbank

Yesterday, the US government presented another ‘deal,’ the third following agreements with the UK and China, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

Import tariffs are likely to do more harm than good

"An import tariff of 20% has been agreed with the Vietnamese government, which is a reduction on the originally announced reciprocal tariff of 46%. Tariffs of 40% will be levied on goods transshipped through Vietnam. This is probably intended to prevent China from diverting its exports. In return, the Vietnamese government is completely abolishing import duties on US products. At first glance, this looks like a victory for the US government – at least if one assumes that the idea of making imports less attractive by means of tariffs makes economic sense."

"I have my doubts about that. In addition to numerous consumer goods, Vietnam exports coffee to the US, among other things. It is already questionable whether and how quickly the US can ramp up production of textiles, for example, which are imported from Vietnam. When it comes to coffee, that's where it ends, as the necessary climatic conditions simply do not exist (apart from in Hawaii)."

"Therefore, the conclusion remains the same: import tariffs, even if they are no longer absurdly high, are likely to do more harm than good. Especially since the Vietnamese economy is hardly large enough and does not have the necessary purchasing power to significantly increase its imports from the US. And so it is not surprising that the dollar was unable to benefit from yesterday's news of the deal."