(Tiểu luận) report the effects of the us china trade war on vietnam‘s economy

Background 21 Brief overview of the US-China trade war 2a Origins 2b Recent developments 42 Brief overview of Vietnam’s economic development 4a Economic development after the Vietnam War

REPORT THE EFFECTS OF THE US CHINA TRADE WAR -

ON VIETNAM‘S ECONOMY

Class : KTE204E(GD2-HK2-2223)61CTTTKT.1

Course : Principles of Macroeconomics

Instructor : Hoang Xuan Binh (Assoc Prof., PhD.)

GROUP MEMBERS

1 Khong Manh Duc (Coordinator) 2212140022

2 Tran Xuan Truong 2212140081

3 Trinh Nhat Minh 2212140060

4 Nguyen Dang Quang Minh 2212140057

5 Le Nguyen Anh Minh 2212140055

6 Tran Trong Dat 2212140097

7 Duong Ngoc Khanh 2212140042

8 Nguyen Hai Anh 2211140205

9 Vu Dinh Huan 2213140035

II Background 2

2) Brief overview of Vietnam’s economic development 4

4) The importance of international trade to Vietnam’s economy 10

The US-China trade war, which started in 2018, has had a lasting effect

on the economy of the world The policies implemented by these twocountries have directly impacted the global economy, especially foreigntrade Vietnam, as one of the most important business partners of thesetwo countries, is no exception As students studying economics, thissubject has caught our interest and hence, we decided to conduct research

on the topic of “ The effects of the US-China trade war on Vietnam'seconomy” which we believe will further improve our knowledge andunderstanding on macroeconomics

For the scope of the study, our research was limited to the developments

of the Us-China trade war during the 2018-2022 time period and its effect

on Vietnam’s economy The study was conducted through researchpublished papers and analysis of the Us-China trade war In the followingresearch paper, the contents of the trade war during the 2018-2022 timeperiod was analyzed, through which the effects of the war on Vietnam’seconomy, both negative and positive effects, were examined

Furthermore, the paper also studied the policies implemented by theVietnamese government to avoid the negative effects and also gainbenefits from the trade war

II Background

1) Brief overview of the US-China trade war

a) Origins

Prior to the trade war

As a businessman running for president, Trump often focused on trade

practices and economic policies Trump especially focused on China both

as a target and a means to forward his presidential campaigns In May 2,

2016, Trump said“Wecan’tcontinuetoallowChinato rape our countryandthat’swhatthey’redoing.It’sthegreatesttheftinthe history of theworld.” (Diamond, 2016;Wong & Koty, 2022) This is one of his manystatements regarding China’s trade practices throughout his campaignsfor presidency(Tiezzi, 2016)

In addition, Trump often stated his opinions and criticism of China on thesocial media Twitter even before running for president In 2011, Trumptweeted “Chinaisneitheranallyorafriend—theywantto beat us andownourcountry”

It was clear that Trump would make significant revisions of the U.S' traderelationship with China should his campaigns succeed

When Trump became POTUS, he focused his rhetoric on reversingChina’s domination on trade, renegotiating the US-China economicrelationship, and eliminating “unfair” policies

The trade war erupts

From July 2018, US President Donald Trump followed through onmonths of threats to impose sweeping tariffs on China for its allegedunfair trade practices (Wong & Koty, 2022) A full-scale trade warbetween the two countries began.(ISDP, 2020)

The US aimed to mitigate China’s overall influence on trade, reducebilateral trade deficit, create more jobs, reduce imports of manufacturedgoods, and etc (Amadeo, 2022;Huang & Slosberg, 2023)

In response, China has made many retaliations in trade policies, such asimposing a 25 percent tariff on 545 American goods.(ISDP, 2020)

The US accuses China of unfair trade practices that may affect the globalorder(Paszak, 2021) In January 2020, the two sides signed a phase onetrade deal that expired in December 2021 with China failing to meet itstargets for US imports The trade war has not significantly improvedunder the Biden administration(Mullen, 2022).

Under Biden’s administration: President Biden has taken a differentapproach to the trade war than his predecessor He has focused onworking with allies to put pressure on China instead of imposing tariffs

In November 2021, President Biden and President Xi Jinping of Chinaheld a virtual summit where they agreed to work together on issues such

as climate change and the COVID-19 pandemic However, the trade warbetween the US and China is still ongoing and there are no signs of itending soon(Morollo, 2021)

2) Brief overview of Vietnam’s economic development (1975-Present)a) Economic development after the Vietnam War

1975: After the war, Vietnam’s economy was one of the poorest in theworld(U.S Library of Congress, 1987) Vietnam’s annual GDP in 1975was only 3 billion dollars(countryeconomy.com, n.d.), which amounted

to approximately 0.23% of US’ GDP ($1.6 trillion)(countryeconomy.com, n.d.) and 2.38% of China’s ($163 billion)(countryeconomy.com, n.d.) Worse, Vietnam saw a GDP per capita of

$83 (countryeconomy.com, n.d.) For reference, Cambodia’s GDP percapita during 1975 was $107(countryeconomy.com, n.d.)

agriculture and industry focusing on post-war recovery and building asocialist nation Family economy and collective economy wereencouraged while capitalist economy was restrained Foreign trade andassistance depended mainly on the Soviet Union and its socialist allies(Ta & Ta, 1978).

=> The economy did not experience any significant growth yet sawalarming stagnation By the mid-1980s, per capita GDP was stuckbetween $200 and $300(Vanham, 2018) Furthermore, the economyremained dominated by small-scale production Lack of innovation andtechnologies also meant inefficient production and thus worsened theconditions of Vietnam’s post-war economy(Cima, 1989)

1986: Prior to Doi Moi, this year marked the peak of hyperinflationwithin our economy: a staggering annual rate of inflation of over700%

In addition, exports were not even a half of imports, and there was noforeign direct investment (FDI)(Van Arkadie & Mallon, 2004) Changesand reforms were obligatory to ensure Vietnam’s successful emergencefrom an economically catastrophic war The government thus launched apolitical and economical renewal campaign called “Đổi mới” to graduallyshift a command economy into a “socialist-oriented market economy”(Beresford, 1988)

b) Economic development after Doi moi

Economic reforms since the launch of Đổi Mới in 1986, coupled withbeneficial global trends, have helped transform Vietnam from being one

of the world’s poorest nations to a middle-income economy Between

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2002 and 2021, GDP per capita increased 3.6 times, reaching almostUS$3,700 Poverty rates (US$3.65/day, 2017 PPP) declined from 14 in

2010 to 3.8 percent in 2020

Thanks to its solid foundations, the economy has proven resilient throughdifferent crises GDP growth is projected to ease to 6.3 percent in 2023,down from 8% in 2022, due to the moderation of domestic demand andexports(The World Bank, 2023) Vietnam's economic growth is expected

to rebound to 6.5 percent in 2024 as domestic inflation could subsidefrom 2024 onward This will be further supported by the acceleratingrecovery of its main export markets (U.S., Eurozone, and China).Growing at 2.5 to 3.5 percent per year over the past three decades, theagriculture sector has supported economic growth and ensured foodsecurity It contributed 14 percent of GDP and 38 percent of employment

in 2020 while earning more than US$48 billion in export revenues in

2021 during the peak of the COVID-19 pandemic

Health outcomes have improved along with rising living standards Infantmortality rates fell from 32.6 per 1,000 live births in 1993 to 16.7 in

2020 Life expectancy rose from 70.5 to 75.5 years between 1990 and

2020 Vietnam’s universal health coverage index is at 73—higher thanregional and global averages—with 87 percent of the population covered

by the national health insurance scheme

Vietnam’s average duration of (learning-adjusted) schooling is 10.2years, second only to Singapore among the Association of SoutheastAsian Nations countries Its human capital index is 0.69 out of amaximum of one, the highest among lower middle-income economies

Access to infrastructure services has increased dramatically As of 2019,99.4 percent of the population used electricity as their main source oflighting, up from just 14 percent in 1993 Access to clean water in ruralareas has also improved—up from 17 percent in 1993 to 51 percent in2020.

Vietnam has grown bolder in its development aspirations, aiming tobecome a high-income country by 2045 To achieve this goal, theeconomy would have to grow at an annual average rate of 5.9% percapita for the next 25 years Vietnam also aims to grow in a greener, moreinclusive way, and has committed to reducing methane emissions by 30percent and halting deforestation by 2030 while achieving net zerocarbon emissions by 2050

Vietnam: Gross domestic product (GDP) per capita in current prices from

1987 to 2027* (in U.S dollars)(O'Neill, 2023)

3) Key industries in Vietnam

In 2022, the agriculture, forestry, and fishery sector accounted for11.88%; industry and construction accounted for 38.26%; the servicesector accounted for 41.33%; product tax minus product subsidiesaccounted for 8.53%(General Statistics Office of Vietnam, 2023).According to the General Statistics Office of Vietnam, in 2022, theagriculture, forestry, and fishery sectors continue to be the foundations ofVietnam’s economy With agriculture rising up by 2.88%, contributing

0.27 percentage point to the overall increment of total added value of theentire economy Forestry increased by 6.13%, contributing 0.03percentage point; fishery rose by 4.43%, adding 0.12 percentage point(General Statistics Office of Vietnam, 2023).

In the industry and construction sector, the processing and manufacturingindustry continue to be the growth motivators of the entire economy with

a growth rate of 8.10%, contributing 2.09 percentage points to the overallincrement of total added value of the entire economy(Báo Điện tử Chínhphủ, 2022)

Water supply, management and treatment of waste and wastewaterincreased by 7.45%, contributing 0.04 percentage points Electricityproduction and distribution increased by 7.05%, contributing 0.26percentage points Mining industry increased by 5.19%, contributing 0.17percentage points The construction industry increased by 8.1 percent,contributing 0.59 percentage points(Báo Điện tử Chính phủ, 2022)

In the service sector, the wholesale and retail industry experienced anincrement of 10.15% over the previous year, the transportation andwarehousing industry increased by 11.93%, the accommodation and foodservice industry had the highest growth rate of the service sector with anincrement of 40.61% Finance, banking and insurance activities increased

by 9.03%, the information and communication industry increased by7.80%(Báo Điện tử Chính phủ, 2022)

To know the importance of international trade to Vietnam’s economy, weshould look at the old management policies where international trading isinhibited and how these approaches hindered the growth of the economy.

Import-Export Turnover By Year(Nguyễn, 2021)

The US (USA) continues to be Vietnam's largest export market in 2022(CafeF, 2022), with an export value of 109.39 billion USD, accountingfor 29.5% of total export turnover, up 13.6% compared to with 2021 Inthe opposite direction, we import from the US 14.47 Billion USD in

2022 Total two-way trade is estimated at 123.86 Billion USD

(VietnamPlus, 2023) The balance of trade between Vietnam and the US

is about 94.92 billion USD

China is Vietnam's second largest export market in 2022(CafeF, 2022).With an estimated export value of 57.70 billion USD, accounting for15.5% of total export turnover, up 3.3% compared to 2021 On thecontrary, Vietnam imports from China 117.95 Billion USD in 2022 Totaltwo-way trade is estimated at 175.57 Billion USD – the largest(VietnamPlus, 2023) Vietnam-China trade balance therefore has a deficit

of about 60.25 billion USD

III Effects of the US-China Trade War on Vietnam

of shifting the US import of goods from China to other alternativemarkets, including Vietnam Within the first four months of 2019,US$20.7 billion of export turnover to the American market which is a40% increase compared to the same period in 2018 Additionally,Vietnam's agricultural, forestry, and aquatic products exported to the UScurrently have a quality quite similar to those of China's exportedproducts (Tạp chí Pháp lý, 2020;Tạp chí Tài chính, 2018)

Vietnamese businesses have to import many input materials to produceand process exported goods Therefore, the US-China trade war willimpact, making the price of input materials cheaper since that Chinacould not export to the US leads to a surplus of supply in China andreduces the price within China’s domestic market and this is an advantagefor Vietnam to reduce the cost of products by importing cheaper inputmaterials from China and improve competitiveness for exported goods.(Tạp chí Tài chính, 2018)

FDI

Vietnam is considered to be one of the essential destinations for FDI flowshifting from China thanks to its strategic location, low labor costs,abundant workforce, favorable macro environment and political stability,large economic openness, and new participation in two free tradeagreements (CPTPP and EVFTA) which have helped manufacturers tohave better access to major export markets The rising production costs inChina have also led investors to shift towards cost-saving investmentdestinations, and Vietnam is seen as an alternative choice Moreover,technology in Vietnam is gradually more advanced, which is also areason to expect the FDI inflow in high-tech fields can come to Vietnam.Here are some figures:

+ Prof Nguyen Mai, Chairman of the Foreign Investment BusinessAssociation, reported that from the beginning of the year until the end

of August 2022, Vietnam has received registered FDI capital of 16.8billion USD, with realized capital of 12.8 billion USD, an increase of10.5% compared to the same period last year

+ From an initial investment of 650 million USD of Samsung in 2006,the figure has increased to 17.7 billion USD in 2022, a 17-foldincrease In particular, Samsung's localization rate in Vietnam hasreached 59% According to the latest data, the number of Vietnamesecompanies as Samsung's tier-1 suppliers has increased from 4 units in

2014 to 50 companies in 2020; the number of tier-2 suppliers hasincreased to 200 companies… (Trần, 2020 Đỗ, 2022; )

2) Negative

CompetitionfromChina

First, although Vietnam and China have the same structure of goodsexported to the US, this does not mean that Vietnamese goods can easilyreplace Chinese goods in the US market The reason is that China haslarge manufacturers and a competitive cost advantage When the USmarket faces difficulties, Chinese companies will shift export markets toother countries, including Vietnam At that time, Vietnamese companieswill face direct competition from Chinese companies, including not onlythe export market, but also the domestic market In addition, cross-bordersupply chains will be shaken if the US imposes tariffs on China morewidely(Jamrisko & Nguyen, 2019)

NegativeeffectsonVietnam’sexportstoChina

Besides, this also has great effects on Vietnam's exports to China Thishappens because China has to focus on consuming its domestic goods.The China-US trade war directly caused a slowdown in global economicgrowth and caused an increase in trade protectionism, adversely affecting

Vietnam's open economy According to statistics, Vietnam's exports ofelectronic products, mobile phones, computers, seafood and agriculturalproducts to China in the first 6 months of 2019 showed a decreasingtrend Among them, the export value of mobile phones and seafooddecreased by 62.3% and 31.5% respectively(Jamrisko & Nguyen, 2019).Challengesforsustainablegrowth

Experts warn that at the current pace of the trade war, this will lead to anexcessive dependence on exports and international investment, Vietnam'ssustainable growth will face long-term challenges In the first 5 months

of 2019 alone, China's foreign direct investment into Vietnam hasincreased rapidly, reaching US$2 billion, of which processing andmanufacturing accounted for 85% This means that Vietnam's exportsmay increase in the future, but the real benefit is not for Vietnameseenterprises On the other hand, Vietnamese managers also need to strictlycontrol investment projects from China to avoid long-term adverseimpacts on the environment when using outdated technologies andpollute the environment There are concerns that Chinese companies willimport outdated and polluting technologies into Vietnam, causingenormous pressure and damage to the environment(Jamrisko & Nguyen,2019)

Beingusedasatranshipmentpoint

Vietnam will need to be careful and prevent Chinese exporters from usingVietnam as a convenient trans-shipment point for its exports to the UnitedStates An example of this is Chinese steel being brought into Vietnamand repackaged as Vietnam’s steel exports to the United States in 2019.This has led to tensions between Vietnam and the United States, with

America slapping tariffs of over 400 percent on Vietnam’s cold rolled andflat steel Although the items subject to tax are mostly machinery andtechnology products which are relatively specific and not too easy forChina to transship to Vietnam to avoid American tax, certain concernshave emerged(Dougn, 2019).

Struggletomeetgrowingdemands

Vietnam also needs to be more selective in welcoming investments intothe country There are concerns about Vietnam’s ability to fully absorband take advantage of the increasing FDI inflow from the trade war, due

to Vietnam’s limited production infrastructure as well as its quality of rawmaterials At present, Vietnam's supply chain and infrastructure network

is reportedly only equivalent to that of China’s several years ago.Vietnam's business environment has much room for improvement, as it iscurrently ranked 69 out of 190 countries – down one place from 2018; it

is 5th among the ASEAN countries (after Singapore, Malaysia, Thailand,Brunei) and 8th out of 25 regional countries in the East Asia-Pacificregion In fact, Vietnam is beginning to realize that expectations are farexceeding reality More and more businesses such as Coach, Kate Spade,and Eclat Textile Co are complaining about congested ports and roads,skyrocketing costs for land and labor, and regulations not easing fastenough If Vietnam is unable to narrow this infrastructure gap in a timelymanner, there is a risk that it would lose the opportunity to capitalize onFDI inflow from the US-China trade war The costs may outweigh thebenefits, driving manufacturers to other regional markets(Jamrisko &Nguyen, 2019)