Daily Management Review

US-China Trade War Spillover Proving Beneficial To Vietnam Economy


US-China Trade War Spillover Proving Beneficial To Vietnam Economy
The spillover benefits of the trade war between the United States and China is likely to result in another growth in the gross domestic product (GDP) of Vietnam which has been a steady economic out performer in Asia. The country has also discovered that its economy was already larger than was previously thought.
There would be a growth of between 6.6% and 6.8% in the economy of Vietnam, whose economy is reliant on exports, this year, according to officials of the country said. The current size of its economy is $300 billion. However, SSI Research in Hanoi says that the growth figures are on the high end of a growth target.
“They found that they understated their GDP itself, that’s one thing,” said Song Seng Wun, an economist in the private banking unit of CIMB in Singapore. “Second is, I think they have been one of the prime beneficiaries of diversification in supply chain after Donald Trump escalated the trade war.”
The bright forecast for 2019 was driven by strength in manufacturing and exports, said the government, said the SSI Research. The trade war between the US and China has forced many multinational companies to shift manufacturing to Vietnam form China which have strengthened both manufacturing and exports of the country.
Since the late 1980s, the country has focused on export oriented growth to stage a turnaround for an ailing economy because of the epic war with the US. That has transformed the economy into one of the fastest growing in Asia and has helped to create a prosperous middle class in the last half-decade.
The Vietnam government had to raise its previous GDP figure because the income from some companies had remained unaccounted for.
Analysts pointed out that multinationals are shifting to Vietnam because of the impact of the US tariffs on goods shipped from China. For some companies, the same goods can be produced and shipped from just across the Chinese border which allows them to avoid the hefty import tariffs imposed by the US on Chinese goods. The entire range of Chinese goods worth about $550 billion imported into the US every year has been brought  in the tariff regime.
“Sentiment about the migration of Chinese manufacturing, that’s a real thing now,” said Frederick Burke, partner with the law firm Baker McKenzie in Ho Chi Minh City. “It’s really happening, so that’s going to be driving up prices and driving up GDP a bit.”
In July, SSI Research had said that production of Apple AirPods to Vietnam, with an investment of $260 million, was being planned by China-based wireless earphone maker GoerTek. And according to a report published in the Nikkei Asian Review in August, the shifting of the manufacturing of Pixel smartphone production from China to Vietnam was being planned by Google. There have however been no comments from Google on this report.
According to Kevin Snowball, Chief Investment Officer with PXP Vietnam Asset Management in Ho Chi Minh City, there are other companies are trying out the strategy of exporting products manufactured in China to the US through Vietnam with a “made in Vietnam” label.
Burke said however also said that there is increasing pressure on land, labor and logistics of Vietnam because of the increase in investment by China-wary manufacturers in the country.
Vietnam was already an attractive destination for foreign factory investors because of its low trade related disputes with the US, low labor costs and pro-investment policies of the government. In addition to its investment appeal, Vietnam is also set to strike a trade deal with the European Union following the country joining the -country Trans Pacific Partnership free trade deal this year.