How US – China potential trade war impacts on Vietnam?

Earlier this month, the US imposed 25% tariffs on $34 billion worth Chinese goods. The Chinese government immediately hit back with tariffs on US goods worth the same value. From then on, both sides have threatened to take more serious actions on the issue which could possibly turn into an unpredictable trade war, damaging the economies of both countries. This conflict will also create an indirect but noticeable impact on other countries, including Vietnam, whose exports to China and US reached $35,46 billion and $41,6 billion respectively, according to the Vietnam Import-Export Report 2017 of The Ministry of Industry and Trade.

The most foreseeable advantage is that Vietnam exporters now have a valuable chance to compete with China in exporting goods to the US. Vietnam export companies have an opportunity to expand their market share while one of their biggest competitors is being held back. It’s also a good opportunity for companies to start participating in the US/China markets. New tariffs force China/US companies to raise their prices, so as a result, customers tend to switch to the products of other countries, with the same quality but with a more reasonable price.

It is also possible that both China and the US may now search for other markets to invest in, as their products are no longer welcome in each others respective jurisdictions. According to the economist Vu Dinh Anh, Former Deputy Director of Market Research Institute – Price (Ministry of Finance), FDI from China and the US to Vietnam will probably increase in order to reduce the damage of the trade war.

On the other hand, in order to reduce its dependence on the US market, China may increase it’s exports to other countries, including Vietnam, along with executing a dumping policy. This might cause pressure and unexpected competition for domestic companies, said economist Dinh Tuan Minh (Institute for Economic and Policy Research). We might not see the influence of this trend yet, since the tariffs only cover a few sectors, but if this tension increases and tariffs imposed on major export sectors, the Vietnam market will probably be negatively affected.

Tension between China and the US also affects the exchange rate of the CNY and USD and the Vietnamese currency (VND) , which also depends deeply on the previous two.

Facing these unpredictable events, precautionary measures should be taken. Governmental  as well as other relevant authorities should revise their policies, ensuring that appropriate procedures to deal with possible disadvantageous impacts are put in place. It’s also important to constantly contact and strengthen the faith of foreign investors, support FDI projects which are suitable for the sustainable development purposes of Vietnam. As for domestic companies, especially those in the import-export sector, regular updates in regards to new policies from both sides of the spectrum is highly recommended.

 

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