Vietnam – A potential Trade War Winner?
The trade dispute between the two biggest economies in the world is expected to create impacts on the economies of other nations including Vietnam.
The Southeast Asian nation has been touted as a possible winner in the U.S.-China trade war because of its low cost of manufacturing. Vietnam clearly wields a slew of advantages over its rivals in the race to lure companies looking for alternative sites.
Among 7 emerging Asian countries, Vietnam was ranked No.1 as manufacturing destination, according to Natixis SA. The ranking was based on several factors including demographics, wages and electricity costs, rankings in doing business and logistics, and manufacturing as a share of total foreign direct investment.
Here’s a look at what makes Vietnam attractive to foreign investors:
Production workers in Vietnam are paid an average of 216 U.S dollars a month, less than half what their peers get in China. Thanks to government subsidies, electricity is also cheaper at 7 U.S cents per kilowatt hour compared with 10 U.S cents for Indonesia and 19 U.S cents for the Philippines, according to GlobalPetrolPrices.com’s June data. Vietnam also has one of the largest labor forces in Southeast Asia, at 57.5 million. That compared with 15.4 million for Malaysia and 44.6 million for the Philippines, according to the World Bank.
Vietnam boasts one of the world’s fastest-growing economies, forecast to expand at about 7 percent this year. The dong has been relatively stable in 2018, compared with other currencies in Asia like the rupee and rupiah which suffered large declines.
Prime Minister Nguyen Xuan Phuc is taking advantage of trade tensions to boost the nation’s profile as a manufacturing and export powerhouse, selling everything from shoes to smartphones. Trade accounts are about twice its gross domestic products – more than any country in Asia apart from Singapore. He said he is confident that growth will reach the higher end of the government’s forecast range of 6.6 percent to 6.8 percent this year. He also vowed to keep the Vietnamese Dong stable in 2019.
Deals and investment
Vietnam is one of the most active countries to participate in free trade agreements (FTA) in the world. Up until August 2018, Vietnam has signed 12 FTAs and 4 Agreements are in the negotiation round.
Read more: Vietnam involves in 16 Free Trade Agreements
The government is also making it easier for foreign investors to do business with a proposed securities law that would allow 100 percent foreign ownership of public companies, except those in restricted sectors like banking and telecommunication.
Foreign direct investment is surging, with the government expecting disbursed FDI to rise to a record $18 billion this year.
Vietnam’s proximity to China also adds to its appeal. The two share a land border, compared with countries like Indonesia, Philippines and Malaysia which are all much further away.
Chinese companies that need raw materials or product components from the U.S will find it easier to source these goods via Vietnam. Vietnam is China’s largest trading partner in Southeast Asia as the two nations become more central in each other’s production chains.
The U.S – China trade war might have not benefited Vietnam in a “big way” yet but “It is now set to be kind of a China 2.0, for various reasons, and yeah, it’s going to be benefiting and that’s going to be long term”, according to Rob Keopp, network director of the Economist Corporate Network on CNBC.