Two-way impacts from the US-China trade war

Due to the great openness of the economy, Vietnam will have to face multiple challenges if the world economy is affected by the United States-China trade war. In addition, the impacts on the Southeast Asian country will surely be much more direct and faster, as both the US and China are Vietnam’s largest trade partners. However, opportunities also exist and could bring about results beyond expectations if Vietnam knows how to take advantage of them.

The trade conflict between the US and China is increasing and nobody knows when it will stop.
The trade conflict between the US and China is increasing and nobody knows when it will stop.

Multi-faceted impacts

The trade war between the two sides began on July 6, as the US officially imposed 25% tariffs on US$34 billion worth of commodities imported from China. In response to this move, China immediately imposed corresponding duties to US$34 billion worth of goods imported from the US. Tensions escalated on July 11 as the US continued to announce a plan to impose a 10% import tariff on US$200 billion worth of goods exported from China, and even threatened to consider the imposition of additional duties on up to US$500 billion worth of commodities.

It can be seen that the trade conflict between the world’s two largest economies is increasing and it remains unknown when it will stop, which is bound to result in instability in the international market, and produce “shocks” to the other economies. The initial consequences are clear to see, as the major stock markets of Asia-Pacific, such as Japan, the Republic of Korea, Singapore, Hong Kong (China), and especially China’s stock exchanges, continued to lose points for several days in a row. As for the countries with deep integration and great openness of the economy, such as Vietnam, the consequences will surely not just stop at the stock market being affected. On the other hand, Vietnam has fostered close commercial relations with these two powers. Specifically, according to the customs statistics, two-way trade between Vietnam and China reached US$93.69 billion in 2017, and promises to hit US$100 billion this year. China still remains the largest import market of Vietnam, with the import turnover reaching US$31.1 billion in the first six months of 2018, equivalent to nearly 28% of Vietnam’s total imports. Meanwhile, the US is Vietnam’s largest export market with a six-month revenue of US$21.5 billion, equivalent to nearly 19% of Vietnam’s total export turnover.

According to experts, if tensions triggered by the US-China trade war, as well as between the US and many other countries, continue to prolong and escalate, investment and production activities will be delayed, while the global economy will see a slowdown or even fall into a recession. If so, Vietnam’s exports and economic growth will also be affected. Assoc. Prof. Dr. Pham Tat Thang (Institute for Industry Policy and Strategy under the Ministry of Industry and Trade) said that Vietnam will even be influenced in a more direct, faster and clearer fashion, as it is located close to China, while fostering close trade ties with both China and the US. Firstly, the US’s high tariffs will cause Chinese goods to seek ways to “spread” to other markets, most easily the countries with a shared borderline, such as Vietnam, in terms of both border trade and official channels, thus putting great competition pressure on domestic goods. Second, China’s production becoming stalled will also affect the country’s demand for importing materials from Vietnam. Furthermore, there is a possibility that a large number of Chinese businesses will go bankrupt, causing part of the labour force to lose their jobs and move to border regions to earn their living, which will pose social and security concerns to Vietnam.

Can Van Luc, an economic expert, warned that Chinese goods could “beguile” Vietnamese goods to be exported to the US. In fact, this once happened when Chinese steel was subjected to high taxation by the US. China exported its steel to Vietnam to “beguile” Vietnamese products for continuous exports to the US market. At the end of May, the US conducted investigations and imposed taxes on certain cases of this type and that is something that requires caution from Vietnam.

Taking a proactive response

Clear as the negative impacts are, experts also see a number of opportunities for Vietnam from the US-China trade war. When Chinese goods are restricted to the US market, this will be an opportunity for all non-taxable goods to penetrate into this market, including Vietnamese commodities. In addition, this trade war has also accelerated the shift of foreign direct investment (FDI) from China to other countries in the region, and Vietnam is also an ideal destination in the eyes of foreign investors.

Nonetheless, from a more cautious perspective, Phan Van Chinh, Director of the Import-Export Department under the Ministry of Industry and Trade, said that the US-China trade war has only just begun and nobody knows when it will end. Also, it is difficult to predict the fluctuations that are likely to occur. Therefore, it is an immediate need for Vietnam to quickly build a response strategy with many scenarios corresponding to the levels of impacts on the country.

Economic expert Can Van Luc suggested that the Government and policy makers should take a proactive role in closely following all developments of the US-China trade war, and together provide a detailed analysis and forecast of the impacts, both direct and indirect, on Vietnam, thence proposing solutions for each scenario.

On the other hand, if opportunities from US-China trade war are true, what’s important is how to seize them. In order to do so, the Government and ministries should continue to focus on reforming administrative procedures, reducing costs and creating a more favourable and open business environment for enterprises. In addition, enterprises need to exert greater efforts to improve the quality of products by innovating and applying technology, thereby enhancing their competitiveness and accumulating enough strength to cope with the negative situations and take advantage of any opportunities.