Why Vietnam risks ending up a big loser from Donald Trump’s tariffs

Vietnam was one of many largest beneficiaries of Donald Trump’s commerce battle with China throughout his first time period in workplace. However Hanoi might turn out to be a sufferer of its personal luck, enterprise teams and analysts have warned, if the president-elect follows by way 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 world producers shifted factories away from China to keep away from the influence of Trump’s tariffs.

However that “China plus one” success has put Vietnam in a susceptible place. Its financial system has turn out to be closely depending on the US, which accounts for practically 30 per cent of all the nation’s exports.

“Vietnam is now more likely to face stricter scrutiny, particularly for items transiting by way of Vietnam to bypass tariffs on China,” stated 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 international locations. Economists at Singaporean financial institution OCBC have warned Vietnam’s financial progress — which was 5 per cent final 12 months — might shed as much as 4 share factors underneath such measures.

“If tariffs had been to be imposed on Vietnam, the results may very well be catastrophic,” Förster stated.

Whereas Trump didn’t point out Vietnam throughout the latest presidential election marketing campaign, he known as out the nation in 2019 as “virtually the one worst abuser of everyone”.

“Vietnam takes benefit of us even worse than China,” he advised Fox Enterprise.

Companies are rattled. “Sure Korean enterprises in Vietnam are involved about potential tariffs from the brand new Trump administration,” stated Hong Solar, chair of the Korea Chamber of Enterprise in Vietnam. South Korea has lengthy been one in all 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 would possibly delay or cut back investments and manufacturing within the nation, Hong stated.

Vietnamese officers are nicely 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 important to transcend the ‘zero-sum recreation’ mindset and guard in opposition to nationalism skewing coverage choices,” he stated.

Whereas south-east Asia as a complete benefited from the US-China commerce battle, 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 international locations upgraded their relationship final 12 months to a “complete strategic partnership”, the very best stage of diplomatic ties afforded by Hanoi. President Joe Biden known as Vietnam “a important energy on the earth and a bellwether on this very important area”, and eliminated the “forex manipulator” label imposed by Trump.

Washington has additionally supported efforts to spice up semiconductor manufacturing in Vietnam, as a part of its marketing campaign to restrict China’s entry to superior chipmaking.

Specialists stated Vietnam might improve scrutiny of Chinese language investments or launch anti-dumping investigations to appease Trump, or take steps to slim its commerce surplus by buying army tools, civilian plane or liquefied pure fuel from US corporations.

“The broader problem is that Vietnam’s comparatively small financial system has solely a lot capability to ramp up imports from the US,” stated 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 considerations.”

Hanoi has cultivated pleasant ties with Washington and Beijing underneath its non-aligned international coverage referred to as “bamboo diplomacy”. However with any improve in purchases from the US, Vietnam must watch out to keep away from angering China, its largest buying and selling accomplice and neighbour.

Investments from China have additionally surged — together with broader FDI — rising 80 per cent in 2023. Its neighbour accounted for the most important variety of new initiatives in Vietnam this 12 months.

Förster famous many Chinese language items had been being routed by way of Vietnam “to bypass tariffs, generally underneath questionable guidelines of origin and even pretend ‘Made in Vietnam’ labels”.

Really useful

He stated 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, stated investments from Chinese language corporations would possibly face additional scrutiny from Hanoi, however Vietnam would nonetheless appeal to 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.

Extra reporting by Haohsiang Ko in Hong Kong

The primary chart on this story, on the US commerce deficit with Vietnam, has been amended since publication to appropriate the quantities proven