China might avoid Trump tariffs by exporting via Vietnam

By Dat Nguyen   September 23, 2018 | 05:45 pm PT
China might avoid Trump tariffs by exporting via Vietnam
Containers of China Shipping and Cosco are loaded at a port in Ho Chi Minh City. Photo by Reuters/Kham
Vietnam could suffer collateral damage if Chinese businesses use made-in-Vietnam labels to avoid U.S. tariffs, experts warn. 

Economist Vu Dinh Anh said it is “highly possible” that Chinese businesses would seek to export their goods through Vietnam to the U.S. amid the trade war between the world’s two largest economies.

One way they can do this is exporting their products to Vietnam and asking a Vietnamese business to label them as “made in Vietnam,” he told VnExpress International.

They can also set up factories in Vietnam and manufacture products with materials imported from China, he added.

“This will result in bad consequences for Vietnam as the U.S. might impose the same tariffs on Vietnam as it did on China.”

Vietnam’s textile and footwear industry insiders expressed the same concern.

Pham Xuan Hong, chairman of the HCMC Association of Garment, Textile, Embroidery and Knitting, said it is possible Chinese garment products would be labeled as made in Vietnam and exported to the U.S.

“We propose that the government control this situation by tracing products’ origin and severely penalizing violations. Otherwise the whole industry will have to suffer consequences,” he told local media.

Diep Thanh Kiet, vice chairman of the Vietnam Leather, Footwear and Handbag Association (LEFASO), said there is a “very high” possibility that Chinese bags would be exported to the U.S. through Vietnam.

If Chinese bag makers want to export to the U.S., they can set up a factory in Vietnam to facilitate the exports, and this can be easily done with a budget of just $200,000, he said.

If this cannot be controlled, there could be grave consequences for Vietnamese textile firms since “the U.S. might apply the same tariffs as they have done on China,” he warned.

This has happened before with steel. In May this year the U.S. slapped anti-dumping duties of 199.76 percent and countervailing duties of 256.44 percent on imports of cold-rolled steel produced in Vietnam using Chinese-origin substrate.

Anh said Vietnam should not repeat this mistake twice since there is a possibility that the U.S. would conduct investigations if it has any suspicion about product origin.

A chance to thrive

But there are opportunities for Vietnamese consumer goods exports amid the trade war.

About 27 percent of Chinese goods set to be affected by the new tariffs are consumer goods, and Vietnam exports many similar items to the U.S., said Can Van Luc, chief economist with the Bank of Investment and Development of Vietnam (BIDV).

“The escalating trade war will create opportunities for Vietnamese exporters of consumer goods to expand their market share in the U.S.,” Luc said.

A recent report by Bao Viet Securities (BVSC) said footwear and textile products have a “great opportunity” to grab U.S. market share from China.

Since the Chinese yuan has weakened against the U.S. dollar and dong, Vietnamese businesses would be able to import garment, leather and other materials cheaper, and this would result in more competitive prices in the U.S., the report said.

Other products to benefit from the trade war are wooden furniture, electronics, sports equipment, and toys, BVSC said.

Viet Capital Securities (VCSC) pointed out in a report, “Vietnam will benefit from the trade war if U.S. businesses look for an alternative supply chain and Americans start buying Vietnamese goods.”

It added that foreign direct investment might shift to Vietnam from China to avoid U.S. tariffs.

The U.S. administration said it would begin to levy new tariffs of 10 percent on about $200 billion worth of Chinese products on September 24, with the tariffs to go up to 25 percent by the end of this year.

China retaliated immediately with 5 and 10 percent tariffs on $60 billion worth of U.S. products.

The U.S. has been Vietnam’s largest trading partner this year, with $30.2 billion in turnover in the first eight months, according to the Ministry of Planning and Investment.

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