Vietnam shouldn’t bank heavily on trade war benefits: experts

By Dat Nguyen   November 5, 2018 | 07:59 pm PT
Vietnam shouldn’t bank heavily on trade war benefits: experts
Containers are loaded at a port in Ho Chi Minh City. Photo by Reuters/Kham
Vietnam does stand to gain from the ongoing U.S.-China trade spat, but daunting challenges remain, experts warn.

There is “a wave” of companies shifting from China to Vietnam to avoid U.S. tariffs, said Mai Huu Tin, chairman of the U&I Investment Corporation

U&I, based in southern province of Binh Duong, involves diverse business lines including property, financial services, farming and manufacturing with 30 member companies. 

Many Chinese businesses have recently come to Vietnam to merge and/or acquire companies operating in the country, Tin said at a recent Vietnam Business Outlook 2019 conference.

A recent report by the American Chamber of Commerce in South China said that both American and Chinese companies operating in China have claimed they are losing market share, especially to companies from Vietnam, as the result of the U.S.-China trade war.

More than 70 percent of the U.S. companies are considering delaying or canceling investment in China, and relocating some or all manufacturing out of China, with Southeast Asia as the leading choice, the report said.

Half their Chinese counterparts were considering doing the same.

Even German, Japanese and Korean businesses operating in China are conducting market research in Vietnam to avoid Trump tariffs, Tin added.

Such transitions have actually been implemented or are being considered by major firms operating in China.

Last month, Goertek, a Chinese company assembling Apple’s wireless earphone AirPods, asked all suppliers involved in its AirPod production to ship all necessary materials to Vietnam, he Nikkei Asian Review reported

"Due to macro-economic factors -- such as external market fluctuations and China-U.S. trade disputes -- the company's operation and management has become more difficult," a report obtained by the Australian Broadcasting Corporation (ABC) quoted the company’s chairman Jiang Bin as saying.

The same trend could be seen in footwear companies which mostly base their manufacturing in China. U.S. sports apparel company Brooks Running announced last month that it was considering shifting its manufacturing operations from China to Vietnam to avoid trade war tariffs.

The company’s CEO Jim Weber said in a CNBC program that the transition, if happened, would allow his company to be more competitive in the world thanks to the lower tariffs in Vietnam.

But experts are concerned that these changes will not deliver long term benefits to Vietnam.

Economist Nguyen Tri Hieu said that he “doesn’t put too much hope” in these transitions, as Vietnam has been attracting foreign direct investment from China because of cheap labor costs. Other countries in Southeast Asia have other competitive advantages, he said.

“Malaysia and Thailand have more advanced technology and more skilled workers. They, apart from Vietnam, are also strategic locations that FDI businesses will shift to in order to avoid the trade war tariffs,” he told VnExpress International.

As for export, Vu Thanh Tu Anh, director of the Vietnam Fulbright Economics Teaching Program, said that the U.S. has mainly taxed Chinese mechanics, electronics and wooden furniture firms.

Chinese textiles and footwear have not been taxed. As these two sectors are Vietnam’s strongest exports, Vietnam won’t be able to gain advantage in exporting these items to the U.S. amidst the trade war, Anh said.

“If Vietnam focuses solely on the trade tensions, it would miss the bigger game.” 

Hieu was also concerned that China would export its goods via Vietnam to the U.S., and Vietnam could, therefore, also attract tariff impositions. 

The U.S.-China trade war escalated in September with the U.S. levying an additional 10 percent tariff on about $200 billion worth of Chinese products. These tariffs would go up to 25 percent by the end of this year, it announced.

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

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