Tuesday, 21 May 2019

US-China trade war shows warning signs to Vietnam: Fulbright lecturer

Updated at Friday, 03 Aug 2018, 13:00
The Hanoitimes - As the US-China trade war may escalate to such an extent that 100% of Chinese exports to the US are subject to tariff, other countries, including Vietnam, may become destinations for the US-bound exports from China, said a Fulbright lecturer.
There has been no clear impact from the US-China trade war on Vietnam's trade activities, however, it is a different story with the country's monetary market, indicating warning signs for Vietnam, according to Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Program in Ho Chi Minh City.
Illustrative photo.
Illustrative photo.
In early July, Washington began the first round of its trade war with Beijing by imposing an additional 25% tariff on 818 Chinese merchandise groups worth about US$34 billion.  The second wave of 284 goods worth another US$16 billion is expected to follow suit.

Recently, President Donald Trump has ordered the US Trade Representative (USTR) to begin the process of imposing tariffs of 10% on an additional US$200 billion of Chinese imports, meaning nearly 50% of all Chinese imports to the US would be subject to a tariff. 

However, the initial figure of US$34 billion is quite low compared to a total of US$505 billion of Chinese imports to the US in 2017, which are mainly mechanical and technological products. Meanwhile, consumer goods account for only 1% of the total, which will hardly impact China's export turnover to the US. 

Among the 818 Chinese imports subject to tariff, Vietnam exported US$1.2 billion worth of similar products to the US in 2017 and of US$545 million in the first five months. Therefore, it is hardly considered an opportunity for Vietnam as those products are not its main export staples. 

Moreover, those mentioned US-bound Chinese products are not consumer goods, so it is supposed to find another destination instead of Asia, including Vietnam. 

Negative impacts on monetary market

Nevertheless, it is the monetary market that Vietnam starts feeling the heat of the US-China trade war. Since the war began, the Chinese yuan (CNY) devalued rapidly, going from the USD selling price of CNY6.3 in April to the current of over CNY6.7.

A devaluation of CNY against the USD would mean an appreciation of VND against the CNY, placing more pressure on the VND to depreciate. This led to the State Bank of Vietnam (SBV)'s decision to increase the selling price of the greenback to commercial banks.

With the nation's current foreign exchange reserves of approximately US$63 billion, the central bank has sufficient resources and instruments to stabilize the USD/VND exchange rate. However, SBV should be flexible in managing the exchange rate, as a late intervention may potentially cause disruption in the financial market, Thanh suggested. 

Accordingly, the SBV's recent increase of the USD selling price may be influenced by external factors. 

However, as the trade war may escalate to such an extent that 100% of Chinese exports to the US are subject to tariff, other countries, including Vietnam may become destinations for the US-bound exports from China. This time there will be mainly consumer products. 

More worryingly, while the USD/VND exchange rate is kept stable, CNY's further depreciation will make Vietnamese products less competitive against the Chinese. 

As Vietnam is part of the Chinese's supply chain of electronic products to the US, a higher tariff imposed will cause a negative impact on Vietnam's exports to China. 

Finally, more Chinese products are faking Vietnamese origins in a bid to enjoy preferential rates when exporting to the US. 

In May, the US slapped steep import duties on steel products from Vietnam that originated in China after finding they evaded US anti-dumping and anti-subsidy orders.

Specifically, US customs authorities will collect anti-dumping duties of 199.76% and countervailing duties of 256.44% on imports of cold-rolled steel produced in Vietnam using Chinese-origin substrate.

The consequence of the issue will not be restricted to Vietnamese enterprises but the whole sector and the credibility of the country. The US then may take steps to reduce trade deficit with Vietnam, which is currently at a high level, Thanh noted. 
Ngoc Thuy
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