Promoting internal strength to cope with trade war implications

Nguyen Duc Kien

The US and China are two of Vietnam’s six largest trading partners. How will the current trade spat impact the Vietnamese economy?

Experts claim that Vietnam could enjoy enormous benefits when its two major export markets, the US and China, take measures to limit each other’s imports through the imposition of high tariffs. This is because their actions will create a void in the market and bring opportunities for Vietnam to boost its export into these two substantial markets.

What would be the benefits for Vietnam?

In fact, China mainly imports raw materials from the US which ranks second in import value just behind machinery and transport equipment. However, among the raw materials, Vietnam can take advantage to export more bauxite only, but with a modest added value because we still cannot refine bauxite into aluminium for export.

Similarly, the US’ largest import item from China is also machinery and transport equipment, processed items, and chemicals. In these product groups Vietnam cannot expect major benefits. Vietnam might only take advantage of food export. Last year the US imported $6.29 billion of food from China.

Once Chinese goods are restricted from being exported to the US, will Vietnam emerge as a good alternative market for Chinese companies?

In fact, China has always tried to boost exports to other countries, including Vietnam, a vast market with an appetite for common items. In my view, if China decides to increase exports to Vietnam due to the import restrictions in the US, that could also prove beneficial.

In the 1990s the Van Luc Chinese beer product started flowing into Vietnam, then Lifan motorbikes.

Not long after that, local consumer goods production firms matured quickly and become capable of producing similar items of better quality and competitive price. Van Luc beer and Lifan motorbikes then gradually disappeared from the domestic market.

Our internal strength is the domestic market with a 93 million-plus population. Handsets and components, footwear, textile and apparel products, and electronic items are our major exports.

Local firms might not be able to turn out finished products, but they can supply materials, accessories, and components to foreign invested businesses.

Made-in-Vietnam products with a high localisation rate and reasonable prices will contribute not only to pushing back similar foreign-made items, but also boosting the exports of these products to markets like the US and China when a trade war ensues.

Boosting exports is not simple due to rising protectionist trends around the world. Will this effect Vietnam’s gains from the trade war?

Vietnam has negotiated and signed 16 bilateral and multilateral free trade agreements. The parties to these agreements cannot impose tariffs to limit imports once Vietnam meets their product origin requirements. Product origin reflects our internal strength, as is shows the deeper engagement of local firms in the global supply chain of exporting companies.

One of our major export items, seafood, has often faced difficulties in export markets because our products still fall below the export markets’ requirements related to food hygiene and even environmental protection standards.

In my view, stringent export requirements, while causing difficulties to local farmers, prompt them to change their operations and practices, which is good for them in the long-term.

For example, when farmers in the southwestern region faced difficulties in shrimp exports, they shifted from the industrial production of shrimp to smaller home-based shrimp farms, which also meets environmental protection and sustainable development targets. Since then, their export products fetch a better price and are favoured in export markets.