US-China trade war cloud creates silver lining for Vietnam

User Written by Joseph Regan on July 04, 2019.

US-China trade war cloud creates silver lining for Vietnam

The trade war between the US and China has been rumbling on for some time now. Back in July 2018 China accused the US of starting ‘the biggest trade war in history’ when President Trump first imposed steep 25% tariffs on more than 800 Chinese products with a value of around $34 billion, including car parts, medical devices and industrial machinery. Since then the situation has steadily worsened with an ever-increasing number of tariffs being introduced by both sides in what seems to have become a tit-for-tat game which is dragging down world trade and putting pressure on vulnerable economies.

However there is renewed optimism following Trump’s meeting with Chinese President Xi Jinping at the G20 summit in Japan last week in which both sides agreed to resume trade talks. The US President also announced that he would not be levying the additional trade sanctions he had been threatening and that he would lift the ban restricting US trade with Huawei imposed last month.

Nevertheless, the tensions between Washington and Beijing have already triggered a manufacturing shift with Vietnam basking in the silver lining caused by China’s dark cloud and currently experiencing a manufacturing boom. Brooks Running, the sports shoe manufacturer which is part-owned by Warren Buffet, is one of the big companies who have already started moving a large part of their operation, including 8000 jobs, out of China and into Vietnam. This has provoked whispers in the media that Vietnam could be emerging as a preferred destination for numerous companies looking to relocate their operations as a direct result of the trade tensions.

In May, the Hanoi Times reported that China’s outflow of Foreign Direct Investment (FDI) in favor of Vietnam has risen consecutively for the past five years in part as a result of tensions between the US and China. With investment flooding into the country, mostly in the clothing industry, there has also been a fierce rise in demand for workers. Vietnamese textile maker, TNG, reports that it has hired 3,000 employees in the last year. The company has even started building its own apartment complex to help hire and retain highly skilled workers!

But some are questioning whether Vietnam can keep up with the demand for trained workers who can do more technical jobs. Another question mark hangs over the country’s infrastructure which is considered to be lacking. Although a structural shift is underway towards manufacturing and services Vietnam’s economy is still largely based on agriculture and the country’s road and rail networks are not sufficiently developed to deal with transporting large volumes of goods from factories to ports for export. While a new deep-water port is under construction it will not open for three years and there are some other huge challenges to be overcome to take Vietnam’s economy to the next level.

Nevertheless, the World Bank has praised Vietnam’s ‘remarkable development record’ over the last three decades as well as its ‘fundamental strength’ highlighting growth of 6.8% in 2017 and 7.1% in 2018. Projected growth for 2019 is 6.6% with poverty levels predicted to continue to decline in the coming years.

The concerns that are being raised about Vietnam’s ability to rise to the manufacturing challenges it may be about to face are the same ones that were directed at China two decades ago. Only time will tell whether this blossoming economy will enjoy the same level of success as its bigger neighbor. One thing is for sure, it’s an exciting time to be living there.

Joseph Regan

Joseph Regan

Posted on July 04, 2019 in Viewpoint.