Will ‘China plus one’ put Vietnam in Donald Trump’s commerce crosshairs?

Vietnam was one of many greatest beneficiaries of Donald Trump’s commerce conflict with China throughout his first time period in workplace. However Hanoi may grow to be a sufferer of its personal luck, enterprise teams and analysts have warned, if the president-elect follows by means 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 international producers shifted factories away from China to keep away from the affect of Trump’s tariffs.

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

“Vietnam is now more likely to face stricter scrutiny, particularly for items transiting by means of Vietnam to bypass tariffs on China,” mentioned 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 that Vietnam’s financial development — which was 5 per cent final yr — may shed as much as 4 share factors underneath such measures.

“If tariffs have been to be imposed on Vietnam, the consequences might be catastrophic,” Förster mentioned.

Whereas Trump didn’t talked about Vietnam in the course of the latest presidential election marketing campaign, he referred to as out the nation in 2019 as “virtually the only worst abuser of all people”. 

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

Companies are already rattled. “Sure Korean enterprises in Vietnam are involved about potential tariffs from the brand new Trump administration,” mentioned 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 only largest investor within the nation.

Ought to Washington impose tariffs on Vietnamese items, South Korean firms may delay or cut back investments and manufacturing within the nation, Hong mentioned.

Vietnamese officers are effectively 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 towards nationalism skewing coverage choices,” he mentioned.

Whereas south-east Asia as a complete benefited from the US-China commerce conflict, no nation has been as profitable as Vietnam at drawing funding due to its proximity to China, business-friendly insurance policies and incentives.

International funding hit $36.6bn final yr, whereas Vietnam’s commerce surplus with the US soared to greater than $104bn, practically 3 times its degree 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 yr to a “complete strategic partnership”, the best degree of diplomatic ties afforded by Hanoi. President Joe Biden referred to as Vietnam “a important energy on the planet and a bellwether on this 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.

Consultants mentioned Vietnam may enhance scrutiny of Chinese language investments or launch anti-dumping investigations to appease Trump, or take steps to slender its commerce surplus by buying navy gear, civilian plane or liquefied pure gasoline from US firms.

“The broader problem is that Vietnam’s comparatively small economic system has solely a lot capability to ramp up imports from the US,” mentioned Peter Mumford, south-east Asia head for Eurasia Group.

“On the FDI entrance, Hanoi may modestly increase funding within the US, however this is able to do little to appease Washington’s commerce issues.”

Vietnam has cultivated pleasant ties with each the US and China underneath its non-aligned international coverage referred to as “bamboo diplomacy”. However with any enhance 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. China accounted for the most important variety of new tasks in Vietnam this yr.

Förster famous that many Chinese language items have been being routed by means of Vietnam “to bypass tariffs, typically underneath questionable guidelines of origin and even faux ‘Made in Vietnam’ labels”.

He mentioned Hanoi was working to determine stricter standards for product labelling, a transfer that might assist keep away from a few of the incoming US administration’s ire.

Thuy Anh Nguyen, a director at Vietnam-focused asset supervisor Dragon Capital, mentioned investments from Chinese language firms may 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 alter import-export practices, negotiate commerce agreements, and strengthen compliance with origin guidelines to mitigate tariff dangers”, she added.

Further reporting by Haohsiang Ko in Hong Kong