Nothing is isolated in world economy today. The US government, in its attempt to punish China for unfair trade practices and reduce its USD 3.75 billion trade deficit, is forcing some of its strongest allies to run for protection. A prominent partner, Vietnam exported around 35 per cent of its goods to China and the United States last year. However, the US-China trade war led to a sharp devaluation of the Vietnamese currency causing a steep decline in its stock markets. Rumors spread about an influx of cheap Chinese consumer goods and the threat of American protectionism spreading in ways that would affect Vietnam’s vital exports. Nearly USD 5 billion of Vietnamese exports, that are a part of China’s value-added supply chain, may feel the impact of being exposed to punitive American tariffs.
Business shifting out of China to avoid tariff
The trade war has also led many foreign companies to shift their production to Southeast Asia. Around 72 Japanese businessmen are planning to expand their investment out of China to shun the risks caused by rising production costs and US-China trade war which is making it difficult for Japanese firms to exports their products to the US from China.
Also, wages in Vietnam are barely a third of those in China, making it easier for brands like Adidas to manufacture twice as many shoes as it does in China. The race is to secure excess manufacturing capacity all around the region — in Thailand, Indonesia and elsewhere, is heating up.
Effect of tariffs on supply chain
China exports complex products to the United States. These are assembled in China from a staggering array of foreign components and raw materials. For instance, a laptop made in China, may have a South Korean screen, a Japanese hard drive and a memory chip from Taiwan. A tariff hurts every part of this international supply chain.
To offset the conflict’s negative impact, Beijing has slashed tariffs for Asian countries. This appeal, however, may not stop the flow of manufacturers out of China to Southeast Asia. The American shoe-and-accessory maker Steve Madden, for example, is shifting its handbag production from China to Cambodia. New tariffs are being planned for another $200 billion worth of Chinese imports, with 6031 products on its target list.
Vietnam to benefit from trade war
Chinese companies may shift more operations southward using ‘’tariff-jumping” tactics to get their goods to the United States. The Vietnamese, at least, are vigilant against Chinese intrusions. In fact, the country might benefit from China’s conflict with the United States, Vietnam’s strongest allies. The Vietnamese government is projecting negligible decline in growth over the next five years. In July, Standard Chartered raised its growth forecasts for Vietnam to 7 per cent this year, based on the influx of foreign direct investment. In addition, the country may also pull in American buyers eager to diversify their imports from outside China.