Vietnam least affected ASEAN member by US-China trade pact

Vietnam has the least proportion of its exports used as raw material for Chinese exports compared to ASEAN neighbours, a report says.
May 17, 2019 | 15:58

Vietnam least affected ASEAN member by US-China trade pact

Laborers work at a garment factory in Sai Dong, outside Hanoi. Photo: Reuters/Kham

As such, it is least affected by US tariffs on Chinese goods, it adds.

The report on the impact of escalating U.S.-China trade tensions recently released by securities firm MB Securities (MBS), quotes Malaysian bank RHB as saying only 2.2 percent of Vietnam’s total export value is used as input material for China’s export production.

This number is much higher for other ASEAN countries, such as the Philippines, Malaysia, and Indonesia, who respectively have 16.9 percent, 11.4 percent and 11 percent of their exports involved in the value chain of Chinese exports.

As a result, Vietnam will not be much affected by last Friday's U.S. action to raise tariffs on $200 billion worth of Chinese imports from 10 percent to 25 percent.

However, the report also warned that trade tensions could stifle growth in both U.S. and Chinese economies, dragging down demand for Vietnamese goods in both markets.

In 2018, Vietnam exported a combined $90.4 billion worth of goods to the U.S. and China, accounting for 37 percent of Vietnam’s export turnover for the year.

The report says Vietnam is among the five countries that the U.S. has biggest trade deficits with ($38 billion in 2018), with main exports to the country being mobile phones, textiles and footwear.

Because many core exports to the U.S. contain raw materials imported from China, MBS warns that the U.S. could also levy tariffs on Vietnamese goods as a way to indirectly tax China, hurting Vietnam.

If China continues to devalue the yuan against the dollar, the State Bank of Vietnam will have to take measures to the same so as to maintain the price competitiveness of Vietnamese goods, the report says.

Nevertheless, the trade spat is an opportunity for Vietnam to partially replace China’s exporting role, given Vietnam’s high degree of openness and participation in 15 free trade agreements, making it a good destination for export manufacturing companies.

Vietnam can already make several of the items that China exports in huge numbers, including computers, smartphones, textiles and footwear. If Vietnam can make use of the opportunities arising from the trade spat, it could become a "factory of the world", although not on China’s scale, the report says.

Overall, the risks posed to Vietnam are short-term, while potential benefits from producers moving to Vietnam are longer-term ones, the report concludes.

VNF ( Vnexpress )

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