The Sino-American trade war is escalating in unpredictable ways. Contrary to some analyses, its impacts on Vietnam are arguably beneficial. A vulnerable economy such as Vietnam’s is unlikely to benefit from this global war.
Many analysts believe that when Chinese goods cannot enter the US market due to soaring tariffs, other countries, including Vietnam, will benefit. This is unlikely because entering the US market is a challenge and entails immense capabilities on the part of Vietnamese enterprises, which cannot be changed in the short term. Firms also need to consider the feasibility of investing with the US market in mind, as well as when and how the trade war will end.
It is possible that Chinese goods will immediately flow into alternative markets, including Vietnam, and become available at lower prices due to a cheaper yuan. This will spell trouble for Vietnamese companies.
China supplies materials for many sectors in Vietnam. The trade war may cause Chinese suppliers to focus on their domestic market, triggering input shortages and higher material prices in Vietnam. The lower prices of imported materials that may arise from a cheaper yuan will not bring sustainable benefits.
Some say that foreign direct investment (FDI) will flow into Vietnam so that the products generated by foreign-invested firms can be exported to the US However, this will have socio-economic and environmental impacts.
Product origin and manufacturing will be more complex. If this issue spirals out of control, Vietnamese firms may be penalised. The US did issue a warning against Vietnam’s steel producers when it was alleged that some of their exports were Chinese steel hoping to enjoy a more favourable tariff in 2018.
More FDI will fuel demand for labour, causing local firms to face more constraints in human resources and land in the short term. Prices may shoot up, too. Consequently, the positive impacts of greater FDI must be assessed carefully and weighed against risks and trade-offs before it is considered a bonus for Vietnam.
Pressure from a weaker yuan
China’s devaluation of her yuan will considerably crank up pressure on Vietnam’s importers and exporters. Firms with exports to China will be confronted with shrinking revenue. The lower purchasing power of the yuan will hamper demand in China, causing the export share of Vietnamese firms to drop.
If China continues this tactic, the yuan will be cheaper compared with other main currencies, making Chinese goods cheaper. Vietnamese enterprises with exports to the European Union (EU), Japan and East Asia countries will face stiff competition from their Chinese counterparts and suffer in terms of competitiveness and market share, which is already limited.
https://english.thesaigontimes.vn/68751/the-trade-war-rages-on.html
