Vietnam was one of many largest beneficiaries of Donald Trump’s commerce warfare with China throughout his first time period in workplace. However Hanoi may develop into a sufferer of its personal luck, enterprise teams and analysts have warned, if the president-elect follows by 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 impression of Trump’s tariffs.
However that “China plus one” success has put Vietnam in a weak place. Its financial system has develop into closely depending on the US, which accounts for almost 30 per cent of all of Vietnam’s exports.
“Vietnam is now more likely to face stricter scrutiny, particularly for items transiting by 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 progress — which was 5 per cent final yr — may shed as much as 4 proportion factors beneath such measures.
“If tariffs had been to be imposed on Vietnam, the results may very well 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 “nearly the only worst abuser of all people”.
“Vietnam takes benefit of us even worse than China,” he informed 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 among 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 would possibly delay or scale back investments and manufacturing within the nation, Hong mentioned.
Vietnamese officers are nicely 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 vital to transcend the ‘zero-sum sport’ mindset and guard towards nationalism skewing coverage selections,” he mentioned.
Whereas south-east Asia as an entire benefited from the US-China commerce warfare, 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, almost 3 times its stage 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 nations upgraded their relationship final yr to a “complete strategic partnership”, the very best stage of diplomatic ties afforded by Hanoi. President Joe Biden referred to as Vietnam “a vital energy on the earth 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 improve scrutiny of Chinese language investments or launch anti-dumping investigations to appease Trump, or take steps to slim 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 financial 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 enhance funding within the US, however this might do little to appease Washington’s commerce issues.”
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 accomplice 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 Vietnam “to avoid tariffs, generally beneath questionable guidelines of origin and even pretend ‘Made in Vietnam’ labels”.
He mentioned Hanoi was working to ascertain stricter standards for product labelling, a transfer that would assist keep away from among 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 further scrutiny from Hanoi, however Vietnam would nonetheless entice extra FDI as producers proceed to shift from China.
Hanoi is “more likely to proactively modify import-export practices, negotiate commerce agreements, and strengthen compliance with origin guidelines to mitigate tariff dangers”, she added.
Extra reporting by Haohsiang Ko in Hong Kong
