The Foxconn Technology Group factories at the Quang Chau Industrial Park in Viet Yen District, Bac Giang Province, Vietnam. - Photo: Bloomberg
HANOI: The last time Donald Trump was the US president, Vietnam reaped big benefits from the trade war he started with China. This time around the outcome could be different.
Trump has threatened tariffs of as much as 60% on Chinese goods in his second presidency, and duties of up to 20% for all imports from other countries.
While Vietnam waits to see what specific measures it faces, some economists warn it could be one of the hardest hit countries in Asia due to its ballooning trade surplus with the US and Trump’s determination to bring more manufacturing jobs back to the US.
"We may see more pressure to impose tariffs on Vietnamese products and tighter monitoring of Vietnamese shipments to the US,'' said Le Dang Doanh, an economist and former government adviser in Hanoi.
"We may also see American manufacturers stepping up with complaints about dumping of Vietnamese products,” he added.
Since Donald Trump slapped higher tariffs on China in 2018, the Southeast Asian economy has forged ahead, attracting record foreign investment and emerging as a manufacturing powerhouse.
Vietnam’s northern regions are now dotted with massive factories employing thousands of workers churning out electronics for Apple Inc. suppliers and other global brands, following Samsung Electronics Co. and Intel Corp. which arrived in the country earlier.
The country has boosted trade with the US over the past decade and now makes up more than a quarter of Vietnam's total exports as of last year, OCBC said in a note last month. Tariffs would cut gross domestic growth by up to 4 percentage points, it adds, leveling activity to pandemic levels.
One of Vietnam’s biggest concerns will be what happens now with its push for the US to classify it officially as a "market economy” that would boost its exporters, and whether the Comprehensive Strategic Partnership, announced with much fanfare when President Joe Biden visited Vietnam last year, will remain a top priority of the incoming Trump administration.
In a congratulatory message to Trump, Vietnam’s Party Chief To Lam, President Luong Cuong and Prime Minister Pham Minh Chinh said they see the US as "its strategically important partner’’ and noted "strong support from President-elect Trump in his first and new terms,’’ according to a statement on the government’s website.
Vietnam is among the world’s most trade-dependent nations, exports account for about 85% of its economy and the US is its largest market. Vietnam had a surplus of around $100 billion with the US last year, the fourth-largest imbalance with the US after China, Mexico and Canada, and one that just keeps growing.
At some point this is likely to put Vietnam in Trump’s sights.
"Historically, Trump’s policies have emphasized reducing trade deficits, and in his previous term, he enacted measures that impacted Vietnam’s trade balance with the US, such as labeling Vietnam as a currency manipulator and launching investigations into its trade practices,” said Tyler Manh Dung Nguyen, chief market strategist at Ho Chi Minh City Securities Corp.
During Trump’s first term, he took a swipe at the country for its growing trade surplus with the US. When asked in a June 2019 interview with Fox Business Network if he wanted to impose tariffs on Vietnam, Trump said: "Well, we’re in discussions with Vietnam.
"Vietnam is almost the single worst - that’s much smaller than China, much - but it’s almost the single worst abuser of everybody."
"Expectations are building protectionist measures might reemerge, raising downside risks for Vietnamese exporters with significant exposure to the US market, notably in sectors like textiles, electronics, and furniture,” Ho Chi Minh City Securities’ Tyler Nguyen said.
Companies like Samsung, which rely heavily on large teams of assembly-line workers, are unlikely to be deterred by tariffs and are expected to maintain operations in Vietnam, benefiting from its low labor costs, Tyler Nguyen added. However, Vietnam’s ambition to attract higher-tech manufacturing could face setbacks if multinationals with more automated processes decide to relocate or remain in the U.S.
For Vietnam’s leaders, one way to temper the growing trade imbalance is buying big-ticket items such as liquefied natural gas, or LNG, from American producers.
"Vietnam is planning to build a lot of LNG plants, so it’s going to have to buy gas,’’ said John Rockhold, head of the Vietnam Business Forum’s Power and Energy Working Group.
"Trump will say, ‘I have the best and cheapest and cleanest LNG and I can sell you technology that can make your plants run cleaner. You need to sign a long-term deal to buy LNG from me.’ And I think the Vietnamese will do it.’’
Vietnam could also draw the ire of a Trump administration because its factories and exports rely on a fair amount of Chinese equipment, material and components. Trump’s former National Security Adviser Robert O’Brien told Vietnamese leaders they must curb illegal re-routing of Chinese exports in his late 2020 visit to Hanoi.
In response to US pressure, Vietnam’s government said it was intensifying its crackdown on Chinese exporters routing products through the Southeast Asian nation to bypass higher U.S. tariffs.
Bamboo Diplomacy
Vietnamese officials, long practiced in the diplomatic art of balancing relations and placating superpowers, are prepared for a potential bellicose Trump administration.
"Vietnam is in a good position,” said Fred Burke, senior adviser at the law firm Baker McKenzie in Ho Chi Minh City. "They aren't strongly aligned with either side of US and China tensions.’’ He said the government "has got a handle on this and recognises how serious it is and will manage it.''
Even if hit with new tariffs, some sectors such as garment and textiles could still gain an export advantage against competitor China, which is at risk of even higher duties, said Pham Luu Hung, chief economist at SSI Securities Corp.
Tougher trade actions and growing tensions between the US and China could still play to Vietnam’s advantage as multinationals continue to seek manufacturing refuge across the border.
Elon Musk, one of Trump’s biggest supporters who is expected to play an official role in the new administration, has already signaled support for Vietnam. Musk’s SpaceX is proposing to invest $1.5 billion in the country tied to its Starlink satellite service in the near future.
Trump, who visited Vietnam twice during his first presidency, may also have developed a new affection for the Southeast Asian country.
Just last month, the Trump Organization announced plans for a $1.5 billion complex of hotels, golf courses and homes in northern Vietnam in a joint venture with a local industrial park developer.
"Vietnam has tremendous potential for luxurious hospitality and entertainment,” said Eric Trump, executive vice president and a son of the president-elect, in a statement. - Bloomberg
