U.S.-China Trade War: What Does Vietnam Gain and Lose?

1:36:15 PM | 5/10/2019

The trade war between the two largest economies of the world affects not only their own export performances but also exerts significant impacts on the world economy, including Vietnam. In the face of this war, impacts on Vietnam’s trade are double-sided.

Opportunity for short-term benefits

The U.S.-China trade war began in July 2018. This tension led to a series of tariff barriers erected against each other. According to many experts, not only Vietnam but all of Southeast Asia will benefit from this development. Mr. Sudhir Shetty, World Bank Chief Economist for East Asia and Pacific Region, said that U.S. - China trade tensions could give Vietnam opportunities to get short-term benefits. Meanwhile, Mr. Bill Stoops, Investment Director of Dragon Capital, said in a conversation with CNBC, that “the profit so far has been slight."

Vietnam is an open economy. In 2018 alone, its total trade value equaled 206.8% of the gross domestic product (GDP). Moreover, the U.S. and China are its two largest markets. In the year to November 2018, the U.S. and China accounted for 20% and 17% of Vietnam’s export value, respectively. Therefore, no matter how this war comes, Vietnam will be affected, either opportunity or challenge, or its ability to turn challenge into opportunity.

As the U.S. and China erected tariff barriers against each other, Vietnam has a lot of opportunities to boost export growth and attract investment capital. In addition, among more than 5,000 Chinese products imposed by the U.S. tariffs, 279 products are similar to Vietnamese. Vietnam is expected to grasp more shares from these products in China, particularly apparels, footwear, seafood, agricultural products and furniture.

However, Chinese products that cannot be exported to the United States may seek ways into Vietnam. This will unintentionally place pressures on domestic goods. At the same time, Vietnam's exports to the Chinese market may also be affected when China's exports weaken.

In addition, balancing the exchange rate - to not slip too much against the dollar and not gain too much against the yuan - is also a big challenge for currency experts.

Turning challenges into opportunities

Amid escalating U.S. - China tensions which may bring unpredictable developments, according to many experts, Vietnam needs to introduce cautious solutions to mitigate negative impacts and grasp the best chance to boost economic development and gain more market share. Especially, the enforcement of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) for Vietnam from January 14, 2019, offers enormous opportunity for the country. This is a comprehensive, high-standard and balancing agreement. It will help strengthen the mutually beneficial link among member economies and boost trade, investment, and economic growth in the Asia-Pacific region.

In addition, the Vietnam - EU Free Trade Agreement (EVFTA) with many regulations on origin, customs, food safety, quarantine and intellectual property will help Vietnam enhance its competitiveness of commodity quality on world markets, and at the same time prove that Vietnam's goods are competitive and can replace Chinese goods.

According to the International Monetary Fund (IMF), a total trade war will cause the global economy to decline by 0.8% in 2020. Vietnam’s GDP is projected to fall by 0.03-0.12% in the next five years or estimated VND6 trillion a year.

In order to minimize negative impacts on the economy, according to some economic experts, Vietnam needs to properly assess US-China tensions in order to make appropriate policies changes. At the same time, it needs to more strongly reform financial system reform, equitize State-owned enterprises, liberalize capital accounts, improve transparency and invest more in human resources. Then, it can quicken the restructuring of the industry and trade sector.

Notably, while the Chinese yuan is slipping sharply against the US dollar, if the Vietnamese dong is unchanged, Chinese goods will be cheaper than Vietnamese goods. Under the current policy, exchange rates are not allowed to rise or fall too much against eight currencies, including those of important economic partners of Vietnam such as USD, EUR, Chinese yuan, Japanese yen, Korean won, Taiwan dollar, Singapore dollar and Thai baht. Therefore, the State Bank of Vietnam (SBV) should closely follow the actual development and make timely adjustments to facilitate local business development.

The U.S. - China trade war impacts both sides of the Vietnamese economy. This is not just an opportunity but a challenge as well. If we know how to take advantage of opportunities and make reasonable strategies, Vietnamese products will have many opportunities to take China's market share in the U.S. and affirm their quality.

Giang Tu