Evaluating the influence of US-China strains

09:27 | 22/05/2019
After raising tariffs to 25 per cent on $200 billion worth of Chinese imports last week, the United States is considering inflicting tariffs on a further $325 billion of their trade rival’s products. Economist Can Van Luc talked with VIR about the possible impacts on the Vietnamese economy from any steps the major powers decide to take next.
evaluating the influence of us china strains
Economist Can Van Luc

Can Vietnam benefit from US-China trade tensions through the acceleration of exports?

Currently, the US imposes about 10 per cent tariffs on Vietnamese exports, far lower than the 25 per cent rate it has imposed on $250 billion worth of Chinese imports, with another $325 billion worth of tariffs likely to come.

In the US market, imports from Vietnam and other countries that bear import tariffs below 25 per cent would become more competitive compared to Chinese goods. Similarly, in the Chinese market, imports from Vietnam and other countries not suffering such tariff rises will hold a greater competitive edge than US imports.

What are the opportunities for Vietnam?

Enormous opportunities are not only available for Vietnam, but also for other countries ­exporting products to the US.

Significantly, Vietnam’s major export items to the US market, such as textiles, ­clothing, footwear, seafood, agricultural produce, woodwork, and electronics, will likely see benefits, as similar items from China suffer 25 per cent tariffs.

Vietnam is currently one of the largest exporters in all these areas to the United States. ­Estimates show that Vietnam  might grab 20-25 per cent ­market share, equal to $18-23 billion out of the $66 billion worth of consumer goods and food items, and $25 billion worth of electronic items, handsets, and components the US needs to import every year.

Estimates show that Vietnam might grab 20-25 per cent ­market share, equal to $18-23 billion out of $66 billion worth of consumer goods and food items, and $25 billion worth of electronic items, handsets, and components the US needs to import every year.

Other Chinese imports such as means of production, industrial equipment, and transport vehicles are also being ­imposed with this 25 per cent US tariff. Regrettably, the exports of these products to the US only account for a tiny 0.5-1.5 per cent of the total import value of these items into that market, but if Vietnam could seize the opportunity, it may be able to export these items to the US in a more suitable manner.

What are the possible impacts on Vietnam’s economy as a whole?

The benefits are based on theory. Whether Vietnamese companies take advantage of the opportunities or not is ­another story, as every exporter wants to cash in on the US-China tariff moves in order to boost exports to the US.

To cope with the tariffs, China might consider the devaluation of their home currency, ensuring ­Chinese-made products are cheaper and more competitive in the global market. If this ­happened, Chinese products would hold greater advantage not only in the US but also in other markets, including Vietnam.

Chinese and American ­imports finding it hard to enter each other’s market will try to break into other markets. Due to close proximity, Chinese goods might ramp up presence in the Vietnamese market and with their advantages on price and patterns, cast growing pressure on similar items in the domestic market, particularly regarding processed and manufactured goods.

In addition, with harder ­access to the US market, China will need to boost domestic consumption, which could result in lower demand for imports. This will adversely affect ­Vietnam’s exports to China and might exacerbate Vietnam’s trade deficit with this market.

To what extent do the China-US trade tensions affect the attraction of overseas investment?

Besides American companies, those from other countries set up in China are mulling over shifting their production ­elsewhere, including to ­Vietnam.

Growing tensions will prompt businesses to move out of China quickly, providing valuable opportunities for ­Vietnam to court global groups such as Procon Pacific, Brooks, and even Apple.

Currently, the US is ­Vietnam’s 11th largest investor with $9.33 billion in total ­committed capital and about $7.5 billion in disbursed ­capital, making up 4.5 per cent of Vietnam’s total foreign direct investment volumes.

Clearly, current US investment into Vietnam is not ­commensurate with its status as the No.1 economy. The US-China trade dispute, therefore, provides an opportunity for US firms to increase investment in Vietnam to raise exports to ­the Chinese market.

By Manh Bon

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