Vietnam finds itself at a crossroads in the US-China trade war
A file image of workers at a factory of the Garment 10 Corporation (Garco 10) in Hanoi, Vietnam, Sept. 10, 2015. EPA-EFE FILE/LUONG THAI LINH
By Eric San Juan
Ho Chi Minh City, Vietnam, Jun 21 (efe-epa).- As the trade war between China and the United States rages on, Vietnam is looking to position itself as an alternative to the Asian giant to supply the American market, though analysts warn that this opportunity comes with long-term risks to its economy.
The impact that the standoff between the world's two largest economies could have on third countries – with Vietnam as the perfect example – is a key issue topping the agenda of the ongoing summit of the Association of Southeast Asian Nations being held in Bangkok from June 20-23.
With a population of nearly 100 million and GDP growth of 7.08 percent in 2018, Vietnam is already starting to benefit from Washington's tariffs on Chinese products as it saw a 38-percent rise in its exports to the US in this year's first quarter.
Other countries in the region such as Taiwan (22 percent), South Korea (17 percent) and Bangladesh (13 percent) have also increased their sales to the US, though they still lag far behind the Vietnamese bonanza.
One of the reasons for this boom is that Vietnam's electronic products, furniture, handbags and fish are beginning to be perceived as more competitive than their Chinese counterparts on the other side of the Pacific Ocean, Vietnamese economist Le Dang Doanh told the news portal VnExpress.
But the hike in Vietnam's exports can also be partly explained by fraud: the country's customs department recently discovered various shipping containers with products sporting the label "Made in Vietnam" that had actually been manufactured in China in an attempt to thwart sanctions.
"If the Chinese import their products and then export them to the US with the label Made in Vietnam, exports may increase, but they're not really Vietnamese," Hoang Nguyen, an economics professor at the Ho Chi Minh City University of Social Sciences and Humanities, told EFE. "Vietnam gains nothing with this. I think the government will take measures of protection."
Other Chinese firms - or China-based foreign companies - have simply chosen to relocate to Vietnam to avoid the tariffs.
"There's a wave of companies moving from China to Vietnam to elude US tariffs," Mai Huu Tin, the chairman of the U&I Investment Corporation, said at a recent conference on business perspectives in Vietnam.
A clear example of this trend is Brooks Running, an American sportswear company that announced in May it was moving its production facilities from China to Vietnam while creating 8,000 new jobs in the Southeast Asian nation.
However, this phenomenon – which may appear positive at first glance due to the rise in total exports and significant job creation – carries with it serious risks to the Vietnamese economy, according to most experts.
"If more Chinese companies arrive, Vietnamese companies will have to compete with them within the country," Nguyen said. "Also, it could lead the US government to just raise tariffs on authentically Vietnamese products."
On the other hand, analysts agree that the US-China spat could provoke a devaluation of the yuan that would make Chinese products in Vietnam even more competitive, creating new challenges for local companies.
In order for Vietnam to fully take advantage of the growth in investment, experts say the country should not just accept all new projects.
"We welcome foreign investment, but we need to choose wisely," Nguyen said.
One of the economist's fears is that China could seize the opportunity to embrace the so-called Industrial Revolution 4.0 with a more modern production system, getting rid of its outdated and highly-polluting industry and dumping its old machinery on Vietnam and other countries in the area.
The fact that Vietnam's sales of heavy machinery to China skyrocketed by 29 percent in the first five months of 2019 – coupled with the $2 billion the latter has invested in the former during the same period – point toward this concern being grounded in reality.
Nguyen said the likeliest option was that Vietnam being sandwiched between the two superpowers in this trade war would bring "few benefits and more disadvantages" to the country.