Tariffs Topple
Subject Economic Growth
Topic International Trade
Key Words Tariffs, Trade Restrictions, Trade Deficit, Economic Growth
News Story

The United States signed an historic trade agreement with Vietnam opening U.S. markets to Vietnam and significantly improving prospects for economic growth in that country. The agreement will slash American tariffs on Vietnamese exports and open the world=s largest market to Vietnamese goods. Currently, trade between the U.S. and Vietnam, a nation of 78 million people, amounts to $827 million in exports and $330 million in imports; about the level of our trade with Haitti.

The trade agreement is expected to take effect next month when the Vietnamese government ratifies the treaty. Tariffs on Vietnamese products imported into the United States will be reduced significantly. For example, the tax rate on apparel and textiles, currently between 48 and 90 percent, will fall to approximately 20 percent. Plumbing fixtures tariffs will fall from 50 to about 5 percent. Reduced tariffs will promote exports from Vietnam to the U.S.

The impact on employment and economic growth in Vietnam is expected to be significant. Inter Ikea System B.V., a Swedish home furnishings chain, is expected to increase production in its Vietnamese factories by about a third. Ikea's exports to the U.S. are expected to more than double between now and 2005. Similarly, Nike, which indirectly employs 46,000 people in Vietnam, is planning to increase exports to the U.S. by about 25 percent as a result of the projected decrease in tariffs from the current 35 to 40 percent, to between 7 to 10 percent. Increased exports translate into higher production and employment.

The new treaty follows years of negotiations with the Vietnamese government. It also pushes the two governments farther along the path of diplomatic normalization first begun almost a decade ago under the senior Bush administration. U.S. consumers will see lower prices for some goods, and Vietnamese companies should benefit from the opportunity to sell in the U.S.

(Updated December 1, 2001)

1. Does Vietnam have a trade deficit or surplus with the U.S.? What would you expect to happen to this deficit or surplus when the new trade agreement takes effect?
2. Many firms, such as Nike, expect to lower costs of production by establishing new production facilities in Vietnam. What is the impact of lowered costs of production on Nike products? On the prices Americans pay for Nike shoes?
3. Who benefits and who loses from the tariff reductions?
Source G. Bruce Knecht, ANew Trade Accord With U.S. Boosts Outlook for Vietnam,@ The Wall Street Journal, October 25, 2001

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