The boom in Vietnamese exports to the US appears to be in jeopardy as Donald Trump is now targeting his key regional ally in his ever-expanding trade war and employers are also beginning to look elsewhere because of rising costs.
The communist government in Hanoi has outlasted numerous US presidents and will be aware the tycoon turned populist might well be ejected from the White House by January 2021. Observers should not expect too many sudden economy policy shifts by Hanoi, despite the endless series of financial punishments coming from Washington.
The US Commerce Department has imposed duties of more than 400 per cent on steel imports from Vietnam, accusing some businesses of using the country’s beneficial trade deals with Washington to evade Trump’s tariffs.
It is not just targeting Chinese products.
The US Commerce Department said goods produced in South Korea and Taiwan were being shipped to Vietnam for minor processing before export to the American market as corrosion-resistant and cold-rolled steel. US customs officers have been ordered to collect cash deposits at rates of up to 456 per cent on steel goods produced in South Korea and Taiwan and sent via Vietnam.
The duties on South Korean and Taiwanese products were imposed in late 2015. Since then Vietnamese shipments of corrosion-resistant steel products and cold-rolled steel to the US increased by 332 per cent and 916 per cent respectively, Washington’s Commerce Department said.
Employers are also aware that Vietnam’s growing popularity as a manufacturing hub is undermining its attractions.
International clothes makers are halting or slowing their expansion in Vietnam amid worries that the US-China trade war will push up wages as tech firms seek to shift production from China.
Several companies which supply firms like Nike, Adidas, Uniqlo and H&M use Vietnam as their biggest manufacturing base. But suppliers for Apple, Dell, Google and Amazon are seeking to shift production to avoid Trump’s tariffs on China and competition for Vietnamese land and staff is expected to increase.
Hanoi looks to US military might to offset Chinese expansionism in the South China Sea and will hope its new role as a trade hub will not undermine its strategic partnership with Washington.
Vietnam has said it is working to reduce its trade surplus with the US and is already trying to stop Chinese manufacturers rerouting their goods through Vietnam for export to the US to bypass higher tariffs.
Makalot Industrial, a supplier for Gap, Walmart, Zara and H&M, has said it would slow its expansion plans in Vietnam.
“More and more companies come to Vietnam … In the foreseeable future, we do foresee a shortage of labour and even fierce competitions in hiring staff,” said Makalot chief executive Frank Chou, adding that the best time for the sector to invest in Vietnam may have passed.
Vietnam, which has a population of 95 million, is Makalot’s largest production base, accounting for 37 per cent of its capacity. But Chou said he was eyeing expansion into Indonesia, which he expected to become Makalot’s largest production base in a few years.
Eclat Textile, Taiwan’s largest sportswear supplier whose clients include Nike and Under Armour, would stop expanding in Vietnam, according to vice president Roger Lo.
“From this year, we will not add capacity to our Vietnam site and we are still looking for other countries to make further investments,” he said.
Makalot only has 4 per cent of production left in China, while Eclat Textile closed its last Chinese factory in 2016. Pou Chen, the world’s biggest contract shoemaker, has also scaled back its Chinese manufacturing over the years, from 29 per cent in 2014 to 13 per cent in the first quarter of this year in terms of total shipments.
Vietnam’s annual trade surplus with the US has exceeded US$20 billion since 2014 and reached US$39.5 billion in 2018, according to the US Census Bureau.
Hanoi said Vietnam’s minimum wage had risen over the last 10 years from 1 million Vietnamese dong (US$43) a month to 4.18 million dong per month this year. It is still lower than Chinese wages.
Most foreign companies already pay far more than the minimum wage.
Vietnam’s exports to the US increased 38 per cent year on the year in the first four months of this year amid the trade war. But Trump appears to be targeting Vietnam next.
Trump last week said Vietnam was “almost the single-worst abuser of everybody”.
“A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China. So there’s a very interesting situation going on there,” Trump told the media last week.
The US embassy in Hanoi said it was in talks with the Vietnamese government and hoped it “takes steps in the near term to address our concerns in a constructive manner”.
Leaders from Asean, Iran and the European Union will be watching the US 2020 presidential election and most will be hoping a grown-up is picked to lead the “free world”.
Vietnam has established itself as one of Asean’s most vibrant economies. Picture credit: Wikimedia