31 Aug, 2018

US – China Trade War: A win or a loss for Vietnam?

The trade dispute between the two biggest economies in the world is expected to create more favors than drawbacks for Vietnam.

The US-China trade war has officially begun following a 25-percent of import tax application on commodities from China by US president Donald Trump, of which 90 percent are manufactured goods. Trump’s decision has blown a tense atmosphere in trade relations between the United States (the No. 1 economy in the world) and China (the world’s most populous and most attractive market), which also create impacts on the economies of other nations including Vietnam.

Positive impacts

The tariffs applied on the Chinese commodities directly raise the cost for the US enterprises who need to import goods from China. As a result, Vietnamese export products will become more competitive in terms of price if the tariffs are strictly restricted to China and do not affect the cross-border supply chain. This is expected to lead to an increase in demand from US enterprises for Vietnamese products especially in the export commodities that Vietnam is strong in such as textiles, footwear or electronic components.

Vietnam can also serve as an alternative manufacturing destination for international enterprises since the investors can benefit from lower tariffs and more stable economic relationship between Vietnam and the US. With the export value from Vietnam to US reaching 41.5 billion USD in 2017, the US has been the biggest export market for Vietnam over the years and is the export value is expected to increase by 10% in 2018.

Negative impacts

The presence of higher applied tariffs from Donald Trump means that it will become difficult for manufactured goods in China to flow into the US. This will most likely influence the Chinese suppliers to shift their target markets to other countries and compete directly with the export products from Vietnam. The export of Vietnam to other countries will therefore be impacted if Chinese products are superior in terms of price and quality.

In the short term, in case it is difficult for Chinese products to reach other markets, the goods that should have been exported will be consumed domestically. The increase in domestic supply in China will then potentially lead to a reduction in the need of goods being imported from Vietnam. This outcome can have a big impact on the upcoming export value of Vietnam especially since China is one of the country’s main export markets.

US – China Trade War: A win or a loss for Vietnam?

Given the above expected impacts from the trade war, Vietnam has its own opportunity to make it a win if the country can take the advantage by continuing to develop a strong commercial relationship with the US and creating further incentives for foreign enterprises to invest in Vietnam. At the same time, it is vital for the Vietnamese suppliers to continuously improve the products’ quality and boost the export competitiveness in order to hold their ground and thrive in other international markets.