Escalating trade war to hit Vietnam’s exports

"The trade war is going beyond analysts’ ability to predict and forecast. It poses big challenges to countries which trade with the U.S. and China, including Vietnam," Deputy Minister of Trade and Industry Tran Quoc Khanh said at a recent meeting: 

Vietnam’s exports in the first six months rose 7.2 percent year-on-year, lower than the average growth of 11.6 percent in the last five years, according to customs data.

RongViet Securities Corporation (VDSC) said in a newly-released note that export growth for the year could be 8 percent. It was 13.2 percent last year.

The risk is even higher as China depreciates its currency to respond to the U.S.’s recent announcement of a tariff hike on $300 billion of its goods. The yuan slid to 7.0039 per dollar on Thursday as a result, the lowest level since April 2008.

Economist Nguyen Tri Hieu said a depreciating yuan would pose a challenge to Vietnamese goods trying to enter China as cheaper Chinese goods will pour into the country more easily and compete with domestic goods. "On the other hand, Vietnamese export items such as seafood will struggle to enter China," he told VnExpress International.

Nguyen Van Kich, chairman of Mekong Delta-based seafood export firm Cafatex, was concerned that some exporters would lower their prices to enter China, leading to all-round lower prices in the industry.

This was likely to occur because Vietnamese firms, with their shallow pockets, need to turn over their inventories quickly to pay off debts, he said.

A weaker yuan caused a decline of 5 percent year-on-year in shrimp exports to China in the first six months, according to the Vietnam Association of Seafood Exporters and Producers.

Experts said Vietnam cannot let its currency slide too far since the U.S. could then label it a "currency manipulator" like China.

In May the U.S. added Vietnam to its currency manipulation watch list for having a high trade surplus with it.

"A weakening of the dong against the dollar is needed to improve exports, but it should not be more than 3 percent for the whole year so that Vietnam won’t provide a reason to be labeled a currency manipulator," Hieu said.

Bao Viet Securities said in a recent note that the central bank is unlikely to let the dong lose more than 3 percent this year. It has fallen so far by 1.23 percent.

In the first half of this year the U.S. was Vietnam’s largest export market buying $27.5 billion worth of goods, a 27.3 percent increase year-on-year.

China was the largest seller of goods to Vietnam with imports of $35.7 billion, up 18.2 percent year-on-year.