Vietnam was one of many largest beneficiaries of Donald Trump’s commerce struggle with China throughout his first time period in workplace. However Hanoi may change into a sufferer of its personal luck, enterprise teams and analysts have warned, if the president-elect follows via on threats of blanket tariffs when he returns to the White Home.
Vietnam has racked up the fourth-largest commerce surplus with the US lately — trailing China, Mexico and the EU — as international producers shifted factories away from China to keep away from the influence of Trump’s tariffs.
However that success has put Vietnam in a weak place. Its economic system has change into closely depending on the US, which accounts for almost 30 per cent of all of Vietnam’s exports.
“Vietnam is now likely to face stricter scrutiny, especially for goods transiting through 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 12 months — may shed as much as 4 share factors underneath such measures.
“If tariffs were to be imposed on Vietnam, the effects could be catastrophic,” Förster mentioned.
Whereas Trump didn’t talked about Vietnam throughout the current presidential election marketing campaign, he referred to as out the nation in 2019 as “almost the single worst abuser of everybody”.
“Vietnam takes advantage of us even worse than China,” he advised Fox Enterprise.
Companies are already rattled. “Certain Korean enterprises in Vietnam are concerned about potential tariffs from the 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 high 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 scale back investments and manufacturing within the nation, Hong mentioned.
Vietnamese officers are properly 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 policies and trade wars lead only to economic recession, conflict, and poverty”.
“Now, more than ever, it’s critical to transcend the ‘zero-sum game’ mindset and guard against nationalism skewing policy decisions,” he mentioned.
Whereas south-east Asia as an entire benefited from the US-China commerce struggle, no nation has been as profitable as Vietnam at drawing funding because of its proximity to China, business-friendly insurance policies and incentives.
International funding hit $36.6bn final 12 months, whereas Vietnam’s commerce surplus with the US soared to greater than $104bn, almost thrice its degree of $38bn in 2017, when Trump took workplace. Thailand is a distant second within the area, with a US commerce surplus of almost $41bn.
The US-Vietnam relationship has strengthened since Trump left workplace. The 2 international locations upgraded their relationship final 12 months to a “comprehensive strategic partnership”, the very best degree of diplomatic ties afforded by Hanoi. President Joe Biden referred to as Vietnam “a critical power in the world and a bellwether in this vital region”, and eliminated the “currency manipulator” label imposed by Trump.
Washington has additionally supported efforts to increase semiconductor manufacturing in Vietnam, as a part of its marketing campaign to restrict China’s entry to superior chipmaking.
Consultants mentioned Vietnam may improve scrutiny of Chinese language investments or launch anti-dumping investigations to appease Trump, or take steps to slender its commerce surplus by buying army gear, civilian plane or liquefied pure gasoline from US firms.
“The broader challenge is that Vietnam’s relatively small economy has only so much capacity to ramp up imports from the US,” mentioned Peter Mumford, south-east Asia head for Eurasia Group.
“On the FDI front, Hanoi could modestly boost investment in the US, but this would do little to appease Washington’s trade concerns.”
Vietnam has cultivated pleasant ties with each the US and China underneath its non-aligned international coverage often known as “bamboo diplomacy”. However with any improve in purchases from the US, Vietnam must watch out to keep away from angering China, its largest buying and selling companion and neighbour.
Investments from China have additionally surged — together with broader FDI — rising 80 per cent in 2023. China accounted for the largest variety of new tasks in Vietnam this 12 months.
Förster famous that many Chinese language items had been being routed via Vietnam “to circumvent tariffs, sometimes under questionable rules of origin or even fake ‘Made in Vietnam’ labels”.
He mentioned Hanoi was working to ascertain 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 entice extra FDI as producers proceed to shift from China.
Hanoi is “likely to proactively adjust import-export practices, negotiate trade agreements, and strengthen compliance with origin rules to mitigate tariff risks”, she added.
Further reporting by Haohsiang Ko in Hong Kong
