Deep impact: A street vendor pushes a bicycle carrying brooms and brushes in Hanoi. Trump’s re-election has prompted several international business publications to warn that his tariff policies could drastically derail Vietnam’s economy. — AFP
HO CHI MINH CITY: The second Trump administration will probably not be as beneficial to Vietnam’s economy as the first one was, but the risk that Trump’s tariff policies will derail Vietnam’s healthy economic trajectory is minimal – in sharp contrast to claims made in some articles published since his election.
Michael Kokalari, a chartered financial analyst and chief economist at VinaCapital, stated so in his recent report.
He highlighted that Trump’s appointment of Scott Bessent as Treasury Secretary would benefit Vietnam. Bessent had repeatedly referred to Trump’s tariff proposals as “maximalist” positions that would likely be watered down in negotiations.
“More importantly for Vietnam, Bessent favours considering US geopolitical objectives when determining tariff levels on individual countries.”
Kokalari noted that the details of how exactly this could function as well as other specifics of Trump’s likely tariff strategy were outlined in a white paper titled “A User’s Guide to Restructuring the Global Trading System” written by a senior economic policy advisor in Trump’s first administration, who is reportedly close to Bessent.
That 40-page report mentions considering geopolitical factors to determine tariffs on individual countries over 20 times.
In short, the bipartisan belief in Vietnam’s usefulness to the United States to help it achieve its geopolitical objectives essentially ensures that Vietnam will not be singled out for overly harsh tariff treatment by Trump, according to the analyst.
Trump’s re-election prompted several international business publications to warn that his tariff policies could drastically derail Vietnam’s economy.
Articles with titles such as, “A Rough Four Years Await Vietnam” that claims that “Vietnam’s economic growth – which was 5% last year – could shed up to four percentage points” were, in VinaCapital’s view, extremely pessimistic because the assertions were not accompanied with any evidence to explain why Vietnam would suffer such a severe decline in gross domestic product.
One article published by a prominent newspaper asserted that South Korean firms might delay or reduce their investments in Vietnam if Trump were to proceed with his plans to put 10% to 20% blanket tariffs on all countries (ex-China).
“But investments by major South Korean companies continue to flow into Vietnam because factory wages in South Korea are nearly 10 times those in Vietnam, and South Korea is ageing at a faster pace than Japan did at the peak of its demographic decline.
“Companies are unlikely to change plans to produce in Vietnam if exports from South Korea and Vietnam to the United States were to suffer from the same tariff burdens, and it is possible that Vietnam may even get favourable tariff treatment vis-à-vis its Asia exporting peers under Trump,” he pointed out.
In his previous report titled “Trump’s Election Should Have Little Impact on Vietnam,” Kokalari explained how Vietnam could be helpful to wean the United States off China-made goods which cost too much to manufacture at home.
An article in Forbes quoted a supply chain expert who said, “If previously it was made in China, now it’s going to be made in Vietnam” because “production is not coming back to America.”
Another article quoted the chief executive officer of Black and Decker, who said his company is unlikely to move manufacturing jobs back to the United States because “it’s just not cost effective”.
Kokalari underscored that the bare bones essence of Trump’s likely tariff strategy is using tariffs to compel China, Germany, etc, to build factories in the United States, and compel widespread cooperation for a “Plaza Accord 2.0” to depreciate the US dollar by approximately 20%.
The latter would encourage the re-shoring of jobs to the United States and would be good for Vietnam because the State Bank of Vietnam (SBV) has loosely pegged the Vietnamese dong exchange rate to the US dollar, he said.
However, Kokalari warned of certain risks for Vietnam’s stock market (and all emerging stock markets), including the potential for further appreciation of the US dollar, which has already caused the dong to depreciate nearly 5% year-to-date.
If the dollar continues to strengthen, it could prompt the SBV to tighten monetary policy, raising interest rates to support the dong.
Another concern is Vietnam’s US$100bil trade surplus with the United States, the third largest after Mexico and Canada.
To put that figure in context, the US Treasury Department has three criteria for a country to be considered a “Currency Manipulator”, one of which is persistent trade surpluses of over US$30bil.
To mitigate risks, he said Vietnam must take proactive steps to reduce this trade surplus by increasing imports from the US, such as liquefied natural gas and aircraft jet engines. — Viet Nam News/ANN
