Vietnam was one of many greatest beneficiaries of Donald Trump’s commerce battle 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 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 world producers shifted factories away from China to keep away from the impression of Trump’s tariffs.
However that “China plus one” success has put Vietnam in a susceptible place. Its financial system has change into closely depending on the US, which accounts for practically 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 nations. 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 beneath 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 latest presidential election marketing campaign, he known as out the nation in 2019 as “almost the single worst abuser of everybody”.
“Vietnam takes advantage of us even worse than China,” he instructed Fox Business.
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 Business in Vietnam. South Korea has lengthy been one in every of Vietnam’s high sources of international direct funding, and electronics group Samsung is the one largest investor within the nation.
Ought to Washington impose tariffs on Vietnamese items, South Korean firms would possibly delay or scale 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 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 a complete benefited from the US-China commerce battle, no nation has been as profitable as Vietnam at drawing funding due to its proximity to China, business-friendly insurance policies and incentives.
Overseas funding hit $36.6bn final yr, whereas Vietnam’s commerce surplus with the US soared to greater than $104bn, practically thrice its stage 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 nations upgraded their relationship final yr to a “comprehensive strategic partnership”, the very best stage of diplomatic ties afforded by Hanoi. President Joe Biden known 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 slim its commerce surplus by buying army tools, 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 beneath 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 initiatives in Vietnam this yr.
Förster famous that many Chinese language items had been being routed by means of 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 would possibly 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.
Extra reporting by Haohsiang Ko in Hong Kong
