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Latest escalation of US-China trade war threatens Vietnam

By Dat Nguyen   May 14, 2019 | 05:12 pm PT
Latest escalation of US-China trade war threatens Vietnam
Vietnam's imports from China rise and exports fall due to trade war impacts. Photo by Reuters/Kham
The latest salvo in the U.S.-China trade war could intensify pressure on Vietnam, experts have warned.

U.S. President Donald Trump last Friday raised tariffs on $200 billion worth of Chinese imports from 10 percent to 25 percent. A day later he ordered a tariff hike on almost all the remaining imports worth $300 billion. In response, China said it would impose higher tariffs on some $60 billion worth of U.S goods starting June 1.

Economist Nguyen Tri Hieu said the U.S.’s aggressive move means China has to depreciate its currency to mitigate the damage. This would lead to a surge in cheaper imports from China, making it difficult for Vietnam’s domestic products to compete, he told VnExpress International.

Vietnam would also struggle to export to China because of the weaker yuan, he added.

The yuan has fallen by 2 percent against the greenback since the beginning of May to its lowest level since last December. Last year, due to the trade war, it had fallen by 7 percent. The dong has fallen by almost 1 percent since the beginning of this year.

Data from Vietnam Customs supports Hieu’s warning. In the first quarter imports from China rose by 18.6 percent year-on-year, while exports fell by 7.8 percent.

Another consequence experts fear is the labeling of Chinese goods as Vietnamese for export to the U.S. to circumvent the new tariffs.

Trump said in a series of tweets on Monday: "Many tariffed companies will be leaving China for Vietnam and other such countries in Asia.

"I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China."

Vietnam has since last year seen an increase in Chinese companies setting up shop to avoid the U.S. tariffs.

Of the six biggest registered foreign projects in Vietnam in the first four months, four were from mainland China and Hong Kong, according to the Ministry of Planning and Investment.

Industrial parks in the northern Bac Ninh Province and provinces in the Mekong River Delta are reporting increased interest from Chinese, Taiwanese and Hong Kong investors.

These companies plan to double or triple their head count by the end of this year as they seek to expand production, a recent report by recruitment firm Navigos said.

Experts caution Vietnam about this. Le Dang Doanh, a former economic adviser to the government, said if this situation is not controlled, it could have grave consequences for Vietnamese companies since the U.S. might apply the same tariffs it does on China if it finds Chinese products labeled as Vietnamese.

Pham Hong Hai, CEO of HSBC Vietnam, said that the trade war might also take away existing foreign investors from the country. This happened during the 2008 global economic crisis, when investors pulled out of Vietnam due to falling demand, lowering the economy’s growth, he said.

Vietnam, with 200 percent trade as a percentage of GDP, is very dependent on the global supply chain, and will suffer if the global economy face challenges from the trade war, he added.

The National Center for Socio-Economic Information and Forecast (NCIF) last year forecast that Vietnam’s GDP could drop by 0.09 percent this year and 0.12 percent next year because of the U.S-China trade tensions.

Nevertheless, there are also some positives for Vietnam from the trade war. Now its goods like electronics, furniture, bags, and seafood are believed to be more competitive in the U.S. than those from China.

In the first quarter Vietnam’s exports to the U.S. rose 28.8 percent year-on-year, making that country the largest importer of Vietnamese goods.

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