Vietnam economy under pressure from Japan – S.Korea tension
If Japan continues to tighten its specialized products export to South Korea, Samsung’s production in Vietnam in the fourth quarter could be severely impacted, causing negative impacts on the country’s economy.
In case Japan and South Korea could not reach a deal to de-escalate the current trade spat, Vietnam’s trade balance and export activities could be affected, according to Viet Dragon Securities Company (VDSC). According to VDSC’s latest report, goods related to semiconductors and displays such as computer, phones, and cameras accounted to 35% of total Vietnam exports in 2018. Phone and parts alone represented 20% of total exports. Hence, if exports of these goods decrease, the merchandise trade surplus will shrink.
Electronic products not only have a major impact on Vietnam’s export activities and trade balance, but also its manufacturing sector, which has been the main driver of the economy in recent years. Samsung, alone, created more than 160,000 jobs.
Samsung said that they are looking for alternatives for Japanese suppliers and that it does not plan to reduce chip production. Russia and China can provide these specialized products, but quality is not as high.
In a latest move, Japan has recently allowed the first shipment of these specialized products to South Korea since restrictions were imposed in July. Hence, it is expected the production activities of Samsung in Vietnam will stay intact in August and September.
The production will peak in next few months as Samsung has just released the Galaxy Note 10.
However, if Japan continues to tighten its specialized products export to South Korea, Samsung’s production in Vietnam in the fourth quarter could be severely impacted, causing negative affect on the country’s economy, not to mention the ongoing trade war between the US and China.
Tension between the two East Asian countries started to rise since South Korea’s Supreme Court ordered Japanese companies to financially compensate Koreans workers and families affected by forced labor in World War II. Even though officials of both sides have met several times since then, there is no sign of progress.
Samsung and SK Hynix have inventories of one and three months of these products respectively. Meanwhile, Japan produces between 70 and 90% of the world output of some of these products.
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