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Is Vietnam Safe as US Steps Back from the China Trade War?

U.S. tariffs on Chinese goods have motivated companies to seek “Made in Vietnam” labels to avoid tariffs. (VOA)

China and the United States have just enacted an agreement this month that allows for a temporary truce in their two-year trade war. From the point of view of Vietnam, one of the main nations caught in the middle, is the truce good news or bad news?

Many people worldwide are hoping for a permanent end to the trade war between the two biggest economies, which may have decreased world economic growth in 2019 to 3%, instead of 3.8%, according to the International Monetary Fund. Those hopeful people include the Vietnamese. However there are still some reasons that continuing the trade war could be good for Vietnam.

First, most obviously, the U.S. tariffs on Chinese exports motivated companies to move from China next door to Vietnam to avoid the tariffs. As a result Vietnamese exports to the U.S. increased 28% in the first three quarters of 2019.

Second, the U.S. may be distracted by the trade war, which is a possible benefit for Vietnam that has not often been discussed.

“Vietnam hopes China will drag out U.S. talks,” said Fred Burke, managing partner of Baker & McKenzie Vietnam, a law firm, late last year.

If Washington is too busy negotiating with Beijing, in other words, it has less time and manpower to deal with Hanoi. U.S. President Donald Trump, who called himself the “Tariff Man,” has expressed interest in issuing more duties on Vietnamese exports, but most of his trade-related attention has been taken up by China instead.

Trump’s main complaint about Vietnam is that it has a large trade surplus with the U.S. That may simply be a result of U.S. customers preferring to purchase Vietnamese exports, but nevertheless Trump’s preferred response is to issue tariffs.

Then-U.S. Agriculture Secretary Tom Vilsack toured a supermarket in Ho Chi Minh City in 2016. The U.S. has issued tariffs on various Vietnamese seafood exports. (VOA)
Then-U.S. Agriculture Secretary Tom Vilsack toured a supermarket in Ho Chi Minh City in 2016. The U.S. has issued tariffs on various Vietnamese seafood exports. (VOA)

Vietnam has reason to stay vigilant. The U.S. in the past has already issued tariffs against Vietnamese seafood and metal exports. For a while it looked like the U.S. might label Vietnam a currency manipulator, giving it another justification to issue more trade penalties against the Southeast Asian nation. However last week the U.S. Treasury Department said in a report it would simply keep Vietnam, among other nations, on a watch list for manipulation, so Vietnam seemed to have dodged a bullet for now.

For its part the State Bank of Vietnam, the central bank, responded in an official statement that it would work with the U.S. Treasury Department “in accordance with macroeconomic balance, market developments, and monetary policy goals, in order not to create an unfair international trade competitive advantage.”

The U.S. warns that foreign nations can keep their currencies artificially low in order to make products cheaper, therefore facilitating exports.

Another main reason the U.S. could punish Vietnam for trade fraud is if the latter allows companies to ship Chinese exports through its country and pretend they are Vietnamese exports to avoid tariffs, a process known as transhipment.

ING, a banking and financial services company, said it was interesting that the Treasury Department did not criticize Vietnam for transhipment in its report.

“Such an accommodative stance toward Vietnam perhaps suggests the U.S. government has little appetite to further disrupt the Asian supply chains of U.S. companies,” Chris Turner and Francesco Pesole, strategists at ING, said in a joint assessment of the Treasury currency manipulation report. They added that the U.S. “seems satisfied with the ongoing efforts of the Vietnamese government to counter trade fraud.”

The two strategists are among many who believe that if the U.S. is really ratcheting down the trade war with China, it might turn its attention to Europe next. They said that in terms of U.S. trade penalties, Vietnam is safe, at least for now. Of course no one knows when the China-U.S. trade war will officially end.