Vietnam was one of many greatest beneficiaries of Donald Trump’s commerce battle with China throughout his first time period in workplace. However Hanoi might grow to be a sufferer of its personal success, enterprise teams and analysts have warned, if the president-elect follows by means of on threats of blanket tariffs when he returns to the White Home.
Vietnam has racked up the fourth-largest commerce surplus with the US in recent times — trailing China, Mexico and the EU — as international producers shifted factories away from China to keep away from the affect of Trump’s tariffs.
However that success has put Vietnam in a weak place. Its economic system has grow to be closely depending on the US, which accounts for practically 30 per cent of all of Vietnam’s exports.
“Vietnam is now more likely to face stricter scrutiny, particularly for items transiting by means of Vietnam to bypass tariffs on China,” mentioned Marco Förster, Asean director at Dezan Shira & Associates in Ho Chi Minh Metropolis.
Trump has vowed to impose tariffs of 60 per cent on imports from China and as much as 20 per cent on items from all different nations. Economists at Singaporean financial institution OCBC have warned that Vietnam’s financial progress — which was 5 per cent final 12 months — might shed as much as 4 share factors below such measures.
“If tariffs have been to be imposed on Vietnam, the results may very well be catastrophic,” Förster mentioned.
Whereas Trump didn’t talked about Vietnam in the course of the current presidential election marketing campaign, he known as out the nation in 2019 as “nearly the one worst abuser of everyone”.
“Vietnam takes benefit of us even worse than China,” he advised Fox Enterprise.
Companies are already rattled. “Sure Korean enterprises in Vietnam are involved about potential tariffs from the brand new Trump administration,” mentioned Hong Solar, chair of the Korea Chamber of Enterprise in Vietnam. South Korea has lengthy been considered one of Vietnam’s prime sources of international direct funding, and electronics group Samsung is the one largest investor within the nation.
Ought to Washington impose tariffs on Vietnamese items, South Korean corporations may delay or scale back investments and manufacturing within the nation, Hong mentioned.
Vietnamese officers are properly attuned to the potential dangers of Trump’s commerce hostility. Vietnam’s president Luong Cuong delivered a thinly-veiled warning on the Asia-Pacific Financial Cooperation summit in Peru final week that “isolationism, protectionist insurance policies and commerce wars lead solely to financial recession, battle, and poverty”.
“Now, greater than ever, it’s essential to transcend the ‘zero-sum sport’ mindset and guard in opposition to nationalism skewing coverage selections,” he mentioned.
Whereas south-east Asia as an entire benefited from the US-China trade war, no nation has been as profitable as Vietnam at drawing funding due to its proximity to China, business-friendly insurance policies and incentives.
Overseas funding hit $36.6bn final 12 months, whereas Vietnam’s commerce surplus with the US soared to greater than $104bn, practically thrice its stage of $38bn in 2017, when Trump took workplace. Thailand is a distant second within the area, with a US commerce surplus of practically $41bn.
The US-Vietnam relationship has strengthened since Trump left workplace. The 2 nations upgraded their relationship final 12 months to a “comprehensive strategic partnership”, the best stage of diplomatic ties afforded by Hanoi. President Joe Biden known as Vietnam “a essential energy on the earth and a bellwether on this important area”, and eliminated the “foreign money manipulator” label imposed by Trump.
Washington has additionally supported efforts to boost semiconductor production in Vietnam, as a part of its marketing campaign to restrict China’s entry to superior chipmaking.
Specialists mentioned Vietnam might enhance scrutiny of Chinese language investments or launch anti-dumping investigations to appease Trump, or take steps to slender its commerce surplus by buying army tools, civilian plane or liquefied pure gasoline from US corporations.
“The broader problem is that Vietnam’s comparatively small economic system has solely a lot capability to ramp up imports from the US,” mentioned Peter Mumford, south-east Asia head for Eurasia Group.
“On the FDI entrance, Hanoi might modestly increase funding within the US, however this may do little to appease Washington’s commerce issues.”
Vietnam has cultivated friendly ties with each the US and China below its non-aligned international coverage referred to as “bamboo diplomacy”. However with any enhance in purchases from the US, Vietnam must watch out to keep away from angering China, its largest buying and selling associate and neighbour.
Investments from China have additionally surged — together with broader FDI — rising 80 per cent in 2023. China accounted for the most important variety of new tasks in Vietnam this 12 months.
Förster famous that many Chinese language items have been being routed by means of Vietnam “to bypass tariffs, generally below questionable guidelines of origin and even pretend ‘Made in Vietnam’ labels”.
He mentioned Hanoi was working to ascertain stricter standards for product labelling, a transfer that would assist keep away from among the incoming US administration’s ire.
Thuy Anh Nguyen, a director at Vietnam-focused asset supervisor Dragon Capital, mentioned investments from Chinese language corporations may face additional scrutiny from Hanoi, however Vietnam would nonetheless entice extra FDI as producers proceed to shift from China.
Hanoi is “more likely to proactively modify import-export practices, negotiate commerce agreements, and strengthen compliance with origin guidelines to mitigate tariff dangers”, she added.
Further reporting by Haohsiang Ko in Hong Kong
