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Vietnam Pivots Away from US-Led Trade Zone as Trump Preps for Office 

  • Ralph Jennings

FILE - A man works at a yarn weaving plant in Ha Nam province, outside Hanoi, Vietnam, Oct. 7, 2015.

Vietnamese officials once excited by joining the U.S.-led Trans Pacific Partnership (TPP), a sweeping Pacific Rim trade zone, are looking instead to other deals that would stimulate their export-dependent economy as the pact may die under President-elect Donald Trump.

The Southeast Asian country that has cultivated export manufacturing as an economic backbone since the 1980s is shifting its focus to free trade deals with China, Russia and the European Union in lieu of the TPP, according to observers.

Always doubts US Congress would pass TPP

Vietnam was widely seen as a top beneficiary among the 12 TPP member nations, including three others in Asia. But officials in Hanoi have worried since mid-year that the U.S. Congress would not ratify the deal by a February 2018 deadline.

"I think they were already aware the TPP wouldn't work out," said Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City. "I think Vietnam already has lots of free trade agreements signed. It's in the Vietnam government's interests to go and sign the agreements."

FILE - Demonstrators rally for fair trade at the Capitol in Washington, May 7, 2014
FILE - Demonstrators rally for fair trade at the Capitol in Washington, May 7, 2014

Trump plans to take U.S. out of TPP

President-elect Donald Trump has said he will try to withdraw from the TPP, which had been negotiated for 10 years and signed in February. His stance dims hopes for implementing the pact, which would cover 40 percent of the global economy.

The TPP would have lifted Vietnam's $193.6 billion economy. Trade deals allow exporters in Vietnam to pay low or no tariffs for shipping goods into signatory markets. Factory owners include foreign firms such as Intel, Samsung Electronics and the major Japanese automakers.

The United States is Vietnam's top export market, valued at $29.9 billion, and American companies are looking to expand from bases in increasingly costly China to new ones in cheaper Vietnam.

But about a month after the trade agreement was signed, Vietnamese financial markets began to price in the idea that the United States might not ratify the TPP. The U.S. Congress, dominated by Trump's Republican Party, must approve the deal to meet a TPP requirement that 85 percent of the 12 members' combined GDPs ratify it.

Vietnam takes a 'wait and see' attitude

A steering committee headed by the Vietnamese deputy prime minister decided in August to put off the country's ratification in 2016 and watch first what other countries do. Vietnam's next chance to ratify the TPP would be early next year.

Vietnamese leaders are focusing on two-way free trade agreements with other countries to replace TPP, analysts believe. A flagship is a free trade deal with the EU, which the two sides finished negotiating this year. In October Vietnam joined the five-member, Russian-led Eurasian Economic Union, giving it access to a market of 181 million people.

FILE - Workers unload sacks of rice from a Vietnam cargo ship carrying some 12, 700 tonnes of rice, at the port in Manila July 5, 2014.
FILE - Workers unload sacks of rice from a Vietnam cargo ship carrying some 12, 700 tonnes of rice, at the port in Manila July 5, 2014.

Pivot back toward Asia

Vietnam is part of 16 free trade deals altogether, including agreements signed by Southeast Asia's 10-member ASEAN trading bloc. ASEAN has agreements with economic powerhouses China, India and Japan.

"I think the fact that Vietnam has not ratified the TPP is one indication," said Louie Nguyen, editor and founder of the news website VietnamAdvisors. He expects the country to pivot toward trade pacts with smaller markets. "It would make sense that they would be sending out trade groups doing research in markets that are less competitive."

Vietnam is also on a list for inclusion in the Chinese government-spearheaded Regional Comprehensive Economic Partnership, a loose trade deal that would also cover India. The TPP included neither China nor India. Analysts say that pact, sometimes seen as China's antidote to TPP, will take several years to finish.

Vietnam, a country of 94 million people, derives more than four-fifths of its economy from exports, stoking growth of 6.7 percent last year. Investment and consumption in Vietnam may dip mildly over expectations of the TPP's death, economists say.

"Obviously people are disappointed, but there's not even a whiff of surprise," said Fiachra MacCana, research head at the stock brokerage Ho Chi Minh City Securities, on market sentiment toward a fading TPP.

"From Vietnam's point of view, we have positive demographics, we have positive FDI, we have urbanization," MacCana said. "TPP was the cherry on top and now I guess the cherry is no longer there, but you still have the fruitcake and you have the possibility of another cherry coming in next couple of years so I think people are fairly calm about it."

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