A woman works at Maxport garment company in Hanoi, Vietnam May 15, 2019. Picture taken May 15, 2019. REUTERS/Kham
A woman works at Maxport garment company in Hanoi, Vietnam, May 15, 2019.

TAIPEI, TAIWAN - The U.S. government agreed this week to give another coast guard vessel to Vietnam so the Southeast Asian country can increase its defense against China. But behind that move, Vietnam and the United States are struggling over a growing trade deficit that has alarmed U.S. officials.

The U.S. government has complained since June that Americans buy more Vietnamese-produced goods compared to what Vietnamese consumers take from the United States.

Vietnam relies heavily on export manufacturing for its economic growth of more than 6% per year. The deficit reached about $40 billion in 2018, which the U.S. Census Bureau calls the fifth largest between the United States and another country.

The diversion of export manufacturing from China, now saddled by U.S. tariffs, to Vietnam particularly alarms Washington, analysts say.

“The concern from the Vietnamese side is that the U.S. could say, ‘OK, we’re going to put tariffs on exports from Vietnam.’ That’s the fear,” said Rajiv Biswas, Asia-Pacific chief economist at market research firm IHS Markit.

“But I think they could avoid that kind of risk by undertaking some substantial purchases of big-ticket capital goods from the U.S.,” he said.

Vietnamese leaders are looking for ways to satisfy the U.S. government and avoid another protracted dispute such as the one Trump launched against China in early 2018, country analysts say.

FILE - U.S. Trade Representative Robert Lighthizer shakes hands with Vietnamese Ambassador to the U.S. Pham Quang Vinh as they wait for the welcoming ceremony of U.S. President Donald Trump at the presidential palace in Hanoi, Nov. 12, 2017.

US warnings

Trump called Vietnam “almost the single worst abuser of everybody” in a comment to the U.S. cable news network Fox News in June. A month later U.S. Trade Representative Robert Lighthizer told a Senate committee that Vietnam must take action to reduce the deficit and open its market to more American imports or services.

In some respects, Washington’s trade dispute with China has been a boon for Vietnam. To avoid tariffs covering $550 billion worth of Chinese goods, some multinationals have moved exports from China to Vietnam for re-labeling as “made in Vietnam,” possibly after just slight changes to the merchandise itself, analysts in the country told VOA earlier this year. Those goods would reach the United States tariff free.

The trade deficit has grown steadily since 2000, said Frederick Burke, partner with the law firm Baker McKenzie in Ho Chi Minh City.

Over the past two decades Vietnam has become an export manufacturing powerhouse now seen as a cheaper alternative to factory production in neighboring China. Vietnam’s membership in the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade bloc also allows liberal trade with Japan, Canada and other developed countries.

“The U.S. is really pressuring them to do something about the trade surplus,” Burke said. “Without the (trade partnership), the U.S. doesn’t have the reverse market entry traction into Vietnam that it should have.”

A manufacturer works at an assembly line of Vingroup's Vsmart phone in Hai Phong, Vietnam, Dec. 4, 2018.

Action by Vietnam

Vietnamese officials will probably respond to U.S. pressure by buying more American goods, Biswas said.

Officials in Vietnam have pledged already to import more American coal, natural gas and farm products, news reports from Hanoi say. U.S. officials would particularly welcome purchases of pricey patrol boats, defense hardware, commercial aircraft and construction equipment, Biswas said.

Those purchases would improve relations fast because the two sides already enjoy strong “strategic” ties, Biswas said. Despite the U.S. role in the Vietnam War, Hanoi now looks to Washington as ally in resisting China’s expansion into a sea where the two Asian countries make claims to overlapping waters.

Defense Secretary Mark Esper said in a speech during his Nov. 20-21 Vietnam visit that the U.S. government would offer the coast guard vessel.

To stop the diversion of “Made in China” goods, Vietnam’s Ministry of Industry and Trade decided in June after a five-month review to impose anti-dumping tariffs on certain items from China that were getting around the U.S. tariffs.

“If they are seen as really slack and just an entrepot for the Chinese goods, they could get slammed,” said Adam McCarty, chief economist with Mekong Economics in Hanoi.

To ease U.S. pressure on trade, he said, Vietnam has “got to really pursue it, make it a public issue, have a state department or whoever involved to see that they’re working with them at least through the official system.”