Vietnam’s shipments are part of China’s value chain and may be badly hit, while U.S. companies may leave China for Vietnam to avoid high taxes.
Washington and Beijing are going toe-to-toe in a trade spat, and Vietnam is set to become embroiled in the conflict, for better or for worse.
The row is likely to deal a blow to export-reliant Vietnam, as its overseas shipments form part of China’s value chain.
“If the U.S imposes high tariffs on China’s broader cross-border supply chain, Vietnam, which exports goods that serve as inputs for China’s exports, will be badly hit,” said economist Le Dang Doanh.
It’s unclear whether Washington will tax Chinese firms alone or their wider supply networks.
About 2.2 percent of Vietnam’ shipments abroad are part of China’s value chain, Bloomberg quoted date from RHB Bank Bhd as saying.
Sharing the same opinion, Steven Schwartz, senior director of sovereign ratings for Asia at Fitch Ratings, said South Korea, Taiwan, Vietnam and Malaysia, all of which export goods – such as machine parts and components for communications equipment – used in the production of items that China then sells to the U.S., are vulnerable, according to the South China Morning Post.
Another risk is that Chinese products hit by high tariffs might flood Vietnam, hurting local manufacturing, while overall world market volatility caused by trade tension could have negative impacts on Vietnam’s exports, Doanh added.
President Trump has recently directed U.S. trade officials to identify tariffs on $100 billion more Chinese imports, upping the ante in an already high-stakes trade confrontation between the world’s two largest economies.
The additional tariffs are being considered “in light of China’s unfair retaliation” against earlier U.S. trade actions, which included a proposed $50 billion worth of tariffs on Chinese goods, Reuters quoted Trump as saying in a White House statement.
In response, Beijing announced extra tariffs on $50 billion worth of U.S. products, including soybeans and cars.
Earlier, China imposed tariffs worth $3 billion on 128 U.S. products in retaliation for U.S. duties on steel and aluminum.
The tit-for-tat escalation of tariff announcements which have stirred fears have unfolded surprisingly rapidly.
However, the U.S.-China trade conflict is not all bad news for Vietnam, as the country may become a more attractive investment destination compared to China due to higher U.S. tariffs, according to some analysts.
Many investors may leave China for Vietnam to avoid the high taxes, they said.
Bloomberg noted that China, the world’s largest exporter, has long been the destination of choice for U.S. and European companies looking to outsource and offshore manufacturing, especially for labor-intensive consumer goods such as clothing, footwear and electronics.
Factory wages in China have risen at the highest pace in emerging Asia, so other developing countries with lower costs have begun to steal away investment and jobs, helping to promote industrialization and boost growth at home, it said.
Apparel and electronics manufacturers, for instance, have already started diversifying production to rivals such as Vietnam and India. Vietnam has been enjoying an export boom, led by sectors traditionally dominated by China, including clothes and mobile phones, Bloomberg analyzed.
In a recent report on Vietnam’s business environment, the American Chamber of Commerce (AmCham) said the country is becoming more attractive to investors, and up to 36 percent of surveyed U.S. firms said they wanted to expand their operations in Vietnam, compared to 21 percent in Thailand and 19 percent in Malaysia.
As of late October 2017, the U.S. had poured $9.4 billion into Vietnam, ranking it 9th of the 100 countries and territories with investments in the Southeast Asian nation.