Vietnam has chance to thrive from US-China trade war: NY Times

Ngoc Thuy 11:15, 2018/09/07

Standard Chartered in July raised its growth forecasts for Vietnam to 7% this year, based on the influx of foreign direct investment.

Fighting elephants just might give the nimblest (or luckiest) ants a chance to thrive, which in this case is Vietnam, stated New York Times in a recent article.

Illustrative photo.

When elephants fight, the ants perish

China and the United States, are now that country's most important trading partners. Together, the two countries gobbled up roughly 35% of Vietnam's exports last year, furthering its transformation from sleepy purveyor of rice and coffee to manufacturing hub.

When the trade war broke out, so did the ominous headlines in Vietnam. A rapid devaluation of the Chinese yuan sparked a brief run on Vietnam's currency and a drop in its stock market. Rumors spread about an influx of cheap Chinese consumer goods and the threat of American protectionism spreading in ways that would affect Vietnam's vital exports. And there was a tangible concern: Nearly US$5 billion of Vietnamese exports are part of China's value-added supply chain, meaning they may feel the impact of being exposed to punitive American tariffs.

Soon another sort of reaction began taking place. Driven by the dangers of the trade war, many foreign companies with stakes in China have started shifting production away from China to Southeast Asia.

One sign of this development was on display in mid-July, when a group of visitors showed up on Vietnam's northern coast near Ha Long Bay.

They represented 72 Japanese businesses, in industries ranging from textiles to electronics, and they were looking for economic refuge. "Many of these Japanese firms have been operating in China," Nguyen Duc Tiep, an official from the local-investment promotion center, told a Vietnamese magazine. "They want to expand their investment markets out of China to shun risks caused by the nation's rising production costs and by the U.S.-China trade war, which is making it hard for Japanese firms to export their products to the U.S. from China."

The Japanese businessmen may be among the trade war's first economic victims. But the shift of manufacturing away from China is not a new phenomenon. Over the past few years, as wages in Chinese factories have risen sharply, many companies, foreign and Chinese alike, have begun moving at least some of their operations to Southeast Asia to take advantage of lower production costs.

Chance to thrive

In Vietnam, where wages are barely a third of those in China, Adidas now makes twice as many shoes as it does in China, and Intel and Samsung Electronics have made billion-dollar investments there. The country's export-led growth depends on attracting foreign investment, and now American and Chinese policies may be hastening its arrival.

"For many companies, the trade conflict is a catalyst to explore changes they hadn't contemplated before," says Jon Cowley, a tax-and-trade partner at the law firm Baker McKenzie in Hong Kong. "For others, it's an accelerant to a process they'd already started. The trade conflict is just pushing them over the finish line."

As the battle escalates, there's a worry that Chinese companies may shift more operations southward, too, using ''tariff-jumping" tactics to get their goods to the United States. The Vietnamese, at least, are vigilant against Chinese intrusions.

It is likely that Vietnam might benefit from China's conflict with the United States, a country that, despite its own protracted war here, has become one of Vietnam's strongest partners.

Nobody can predict all of the pain and permutations of the trade war. The Vietnamese government is cautious, even projecting negligible declines in growth over the next five years. Others are far more sanguine. In July, Standard Chartered raised its growth forecasts for Vietnam to 7% this year, based on the influx of foreign direct investment.

In addition to attracting companies hedging their Chinese bets, Vietnam may also pull in American buyers eager to diversify their imports from outside China. "The consensus before was that T.P.P. would be the catalyst," says Michael Kokalari, chief economist at the Vietnam-focused asset-management firm VinaCapital. "But the trade war could be the thing that really opens the floodgates." In Vietnam, fighting elephants just might give the nimblest (or luckiest) ants a chance to thrive, New York Times wrote on concluding the article.

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