The present study intends to provide an overview of the US-China trade war, analyze opportunities and challenges to Vietnam along with up-to-date data and conclude by proposing solutions
THE US-CHINA TRADE WAR OVERVIEW
Theoretical background
A trade war occurs when two or more countries impose increasing trade restrictions on each other, often in retaliation to existing barriers These restrictions can take various forms, including tariffs, import quotas, subsidies, and strict regulations on goods Additional measures may involve anti-dumping duties, currency devaluation, and embargoes, all aimed at limiting trade and protecting domestic industries.
A trade war often results from protectionist measures, which are government actions designed to limit international trade These policies typically aim to safeguard domestic jobs from competition with cheaper labor in foreign markets.
Outsourcing offers businesses a competitive advantage by leveraging low-cost labor in developing countries, attracting investors to industries like processing and manufacturing In contrast, industrialized nations have higher wages due to greater worker productivity Consequently, international corporations often opt for cheaper labor abroad at various stages of production, which can lead to job losses domestically.
In another case, for example, country A imposes on potatoes imported from country
B The tariffs makes imported potatoes more expensive than domestically-grown potatoes Thus, people in this country are going to buy A-produced potatoes, which increase A- farmers’ earnings The farmers will continue to cultivate potatoes instead of looking for another job b To improve a trade deficit
A trade deficit, or negative trade balance, occurs when a country's imports exceed its exports in value The balance of trade assesses the flow of exports and imports over a specific timeframe Implementing tariff barriers can help a nation decrease imports by making foreign goods more expensive than local products, which may enhance the trade deficit This strategy also aims to protect emerging industries, often referred to as "infant industries."
Infant industries refer to newly established sectors that require time to develop, enhance their competitiveness, and capture a share of the domestic market Protectionism serves as a strategy to prioritize these local industries, offering them essential growth opportunities until they are capable of competing with more established firms in the global marketplace.
Vietnam aims to safeguard its automobile assembly industry by imposing high tax rates on finished cars This includes an import duty of 30% for vehicles imported from ASEAN countries and 70% for those from other nations, alongside an excise tax ranging from 40% to 150% and a value-added tax of 10% These measures also serve to protect the industry from "dumping."
The World Trade Organization (WTO) defines anti-dumping duty (ADD) as a tariff applied to imports from foreign countries that are sold at prices lower than the fair market value of comparable domestic products This measure is implemented to safeguard local markets from unfair competition posed by these undervalued foreign imports, particularly when there is evidence of dumping.
For instance, Vietnam’s shrimp has been levied ADD by the US Department of Commerce The current tax rate is 4.58% e To earn more revenue
Taxes represent the income generated by the government, and the implementation of tariffs enhances this revenue through various means such as quota auctions Furthermore, protectionist policies can stimulate economic growth by increasing domestic production, thereby contributing positively to the GDP.
1.1.3 The impact of a trade war
Trade protectionism is viewed by some economists and policymakers as a potential booster for a nation's economy; however, many argue that it could lead to significant negative consequences One major concern is the onset of trade wars, which can harm trading relationships and strain political ties between countries Theoretically, the repercussions of a trade war may include a slowdown in economic growth.
High tariffs restrict consumer choice, limiting the variety, quality, and quantity of products available, which can lead to increased inflation as consumers face higher prices for fewer options This situation forces consumers to either pay more for lower-quality goods, buy less, or forgo purchases altogether Additionally, domestic firms may suffer financially as they are compelled to buy more expensive parts to manufacture their products, ultimately passing these costs onto consumers Furthermore, the economic strain caused by these factors could result in job losses.
Countries engaged in a trade war typically respond by imposing tariffs on exports from the initiating nation This retaliation forces exporters to reduce costs and potentially lay off employees to maintain competitive pricing If these measures are insufficient, companies may need to implement further cost-cutting strategies or risk going out of business, ultimately weakening the domestic industry they aimed to protect.
Protecting an infant industry can be beneficial, but the duration of such protection is crucial Extended protectionism may stifle the necessary growth and development that these industries require to thrive in both the short and long term, ultimately affecting their competitiveness in global markets and their ability to achieve a comparative advantage Additionally, without the pressure of foreign competition, domestic producers lack the motivation to innovate or invest in research and development (R&D), which can lead to a decline in the quality of local products compared to foreign alternatives.
The US-China trade war escalation
This section outlines the key events of the war, detailing their causes across three main phases: the initiation, escalation, and truce The United States played a crucial role in instigating the tensions, and the analysis will primarily focus on supporting the decisions made by the US In contrast, China's actions are aimed at either retaliating against the US or mitigating tensions to stabilize the market.
1.2.1 Highlight events a The starting phase (22/1/2018 – 22/03/2018)
During this period, the United States and China mainly compiles evidence of free trade violations, threatened to impose on imports and acquired knowledge of the adversary
On January 22, 2018, the United States implemented a 30% tariff on solar cell imports and washing machines, with plans for gradual reductions in subsequent years In retaliation, China initiated a one-year anti-subsidy investigation into sorghum imported from the US.
On 8 th March, 2018, the US asked China to develop a plan to reduce the 375 billion USD in the US trade deficit by 100 billion USD A part of China's economic reform plan is to reduce its reliance on exports But it cautions there isn't much it can do, since the deficit is fueled by high the US demand for low-cost Chinese goods After that, the US authorized a 25% tariff on steel and a 10% tariff on aluminum imported from all nations, including China Two weeks later, the US announced it would levy tariffs on 60 billion USD of imports from China China responded by announcing tariffs on 3 billion USD in US fruit, pork, recycled aluminum, and steel pipes b The escalation phase (23/3/2018 - 23/9/2018)
During this phase, China made concessions; however, the US responded by imposing import tariffs on Chinese exports, prompting retaliation from China This marked the beginning of the significant impact of taxation on trade relations.
In April, the United States lodged a complaint with the World Trade Organization (WTO) regarding China's protection of intellectual property rights (IPR), while China countered with its own WTO complaint against US tariff measures on Chinese steel and aluminum Additionally, the US announced a list of proposed tariffs primarily aimed at high-tech industrial products.
China faces a potential $50 billion in imports from the US, with threats of a 25% tariff on 106 American products, including soybeans, automobiles, chemicals, and aircraft In response, the US is considering an additional $100 billion in tariffs and has imposed a 7-year ban on ZTE Corp from purchasing components from US companies due to violations involving Iran and North Korea To mitigate these tariffs, China has pledged to open various sectors, particularly indicating a possible reduction of car import tariffs by 50%.
In early May, trade discussions between the US and China led to a significant agreement, with the US pausing its taxation efforts In return, China committed to boosting its purchases of US commodities, eliminating tariffs on American agricultural products, and reducing import duties on cars from 25% to 15%.
However, the US backed away from the previous deal and announced a 1.3 billion USD fine and other punishments for ZTE Despite of China’s concessions and offers, the
The United States has confirmed its decision to implement tariffs on $50 billion worth of imports from China, alongside measures aimed at restricting investments in sensitive technologies and limiting visa access for Chinese nationals, all in an effort to safeguard intellectual property rights.
On 7 th July, 2018, tariffs on 34 billion USD of China exports began
China imposed tariffs on $16 billion worth of U.S exports in retaliation, prompting Trump to threaten additional tariffs that could impact all $500 billion of Chinese imports Furthermore, the U.S is contemplating raising the proposed tariff on $200 billion of Chinese exports from 10% to 25%.
On 23 rd August, 2018, tariffs on 16 billion USD of Chinese imports began China’s retaliation of tariffs on 16 billion USD of the US’s exports also went into effect
On 24 th September, 2018, the 10% tax on 200 billion USD in Chinese imports began to take effect China responded to US tariffs by implementing tariffs on 60 billion USD worth of US goods c The truce phase (25/9/2018 – 30/4/2019)
The World Trade Organization (WTO) has initiated an investigation into China's intellectual property policies and U.S steel tariffs In a significant development, the U.S and China have reached a temporary truce, agreeing to pause any new tariffs for 90 days starting December 1, 2018 Additionally, China has announced a reduction in tariffs on various goods.
700 imports It pledged to treat all firms equally, whether they are foreign, private Chinese companies or state-owned enterprises
On 5 th March, 2019, beyond the truce’s deadline, the US confirmed to postpone tax increase as the previous plan The current tax rate is 10% and no strikes or retaliation have been made by the two countries Both US and China hold trade talks in Washington and Bejing
During the time, there were two main measures taken by the US and China: Commercial measure and Non-commercial measure
The United States has implemented tariffs on a range of Chinese imports, including information and communications technology products, apparel, wooden furniture, steel, and automotive parts, due to alleged intellectual property rights violations and subsidies These tariffs are currently in effect.
The US is set to impose new restrictions on Chinese investments, targeting 14 categories of advanced technologies deemed crucial for Beijing's strategy to diminish its dependence on American technology, particularly in alignment with the "Made in China 2025" initiative The Department of Commerce's new regulations will prevent China-owned companies from acquiring US firms involved in sectors such as biotechnology, artificial intelligence, machine learning, data analytics, and robotics, as enforced by the Committee on Foreign Investment in the US (CFIUS).
China has implemented tariffs on US exports, targeting key products such as agricultural goods and civil aircraft, which significantly affect President Trump's political standing, particularly in states that supported him Additional items facing tariffs include automobiles, semiconductors, cotton, oil, coal, and natural gas, all of which are currently subject to these trade measures.
The impacts of the trade war on the US and China’s economy
This part will point out the impacts of the trade tensions on the US and China investment, production and import-export activities As Chinese President Xi Jinping said,
“No one will emerge as a winner in a trade war”, both China and the US had to suffer many negative effects from the trade war
From May to September, Chinese exports to the US increased by more than 10%
In contrast, the amount of products China imported from the US dropped dramatically Three biggest areas affected by trade tensions are: Automobiles, Tech and Telecommunications, Agriculture
The imposition of tariffs on China has prompted several US companies to consider relocating their factories abroad or reducing their workforce to cope with escalating costs Ford's CEO, Jim Hackett, revealed that the tariffs on iron and steel resulted in a $1 billion loss for the company in 2018 and 2019, leading to job cuts as a cost-reduction measure Similarly, BMW is encountering challenges in the Chinese market, with a 30% drop in imports of its popular X3 and X5 models from South Carolina shortly after the trade began, due to high tax rates Although Honda sources 90% of its steel domestically for US production, the rise in steel prices attributed to tariffs has forced the company to incur hundreds of millions of dollars in additional expenses.
Due to cybersecurity concerns and technology theft, the US and its allies are considering banning Chinese technology companies, leading to a significant decline in Chinese investments in US tech firms In 2018, Chinese investments exceeded two billion USD, but this figure has plummeted by over 80% since 2017, according to Forbes If the ongoing bilateral trade negotiations between the US and China remain stalled, the downward trend in investment flow is likely to persist.
Admittedly, the soybean industry suffered the most damage in agricultural sectors due to high taxes As a result, Brazil became China's soybean supplier to replace the US
In November, China, the world's second-largest economy, imported 5.07 million tons of soybeans from Brazil, marking an increase of over 80% compared to 2.76 million tons the previous year In contrast, Chinese soybean imports from the United States plummeted by 38%, dropping from 4.7 million tons during the same period last year Farmers in states such as Illinois, Iowa, Minnesota, and North Carolina have been significantly impacted by these changes Since the onset of the US-China trade war, soybean and corn prices in the US have decreased by approximately 12%, leading many farmers into debt.
Due to rising labor costs and stricter environmental regulations in China, the country has become a less appealing destination for investment In response, Advantech, a prominent desktop manufacturer, has announced plans to relocate its production lines from China and establish a new factory, alongside opening additional sales offices.
GoerTek Group and Gigabyte have announced their intentions to relocate production from China to mitigate trade tensions, with plans to shift manufacturing to Southeast Asian countries like Vietnam, Indonesia, and Thailand.
The trade war has impacted over one-third of China's export value, as reported by Global Trade Alert (2018) However, in the short term, there has been little significant change in Chinese production and exports Notably, US Customs data indicates that China's export value to the US rose to 42.7 billion USD in October, marking a 13% increase from the previous month, as Chinese exporters rushed to fulfill orders ahead of potential tariffs.
A recent EconPol Europe study reveals that a 25% increase in tariffs on Chinese products resulted in only a 4.5% average rise in US consumer prices, while simultaneously causing a significant 20.5% decline in the producer prices for Chinese firms This indicates that the long-term effects of rising tax rates extend beyond just taxed products, impacting related industries as well.
China is the largest importer of soybeans from the US, and the imposition of taxes on this product has severely impacted the livestock and bean pressing industries, leading to supply challenges and the closure of over 20 bean pressing factories This has resulted in a significant reduction in large-scale production, a trend rarely seen before Although China has sought alternative soybean sources, primarily from Brazil, these new suppliers cannot fully meet China's demand due to insufficient volume and higher prices Efforts to encourage local farmers to increase soybean acreage may take years before China can satisfy its agricultural needs independently.
The US initiated a trade war to enhance its trade balance, but achieving this goal proves challenging In September 2018, China's bilateral trade surplus with the US reached $34 billion, largely due to Chinese exporters rapidly stockpiling and shipping goods to the US ahead of potential tax increases from 10%.
Despite China's commitment to reduce the US trade deficit by increasing purchases, the reality has been slow to materialize, as many Chinese importers have sought alternative suppliers A notable instance occurred at the end of 2018 when a ship carrying approximately 70,000 tons of US soybeans was redirected from a Chinese port to a Vietnamese port Consequently, the bilateral trade balance between the US and China has not improved as anticipated.
Chapter 1 explores the concept of "trade war" through the lens of the US-China trade conflict, examining its definition, causes, and impacts While countries often seek the benefits of trade protection, the interconnected nature of globalization means that trade wars typically yield negative consequences for many nations The US and China implemented various commercial and non-commercial measures against each other, with the US aiming to improve its trade balance, promote fair trade, curb China's rise, and exert political influence Conversely, China sought to mitigate the situation while also retaliating The trade war's effects on investment, production, and import-export activities in both countries highlight the inevitable repercussions of protectionism, such as a deteriorating trade balance, investment diversion, and rising production costs Ultimately, both nations appear to be shifting their interests onto other countries.
THE IMPACTS OF THE US-CHINA TRADE WAR TO VIETNAM
Vietnam’s trade relations with China and the US
2.1.1 The trade relationship between the US and Vietnam a Trade relations
In 1995, the formal normalization of diplomatic relations between the U.S and Vietnam initiated a significant trade partnership This relationship deepened further when Vietnam joined the WTO in 2007 By 2018, the trade turnover between the two nations surged to over $60 billion, a remarkable increase of 133 times from the $450 million recorded in 1995.
Figure 2.1 Vietnam's export-import to the US (2007-2018)
Source: General Department of Vietnam Customs
The growth of import and export turnover between Vietnam and the US in the 2007-
2018 period reached an average of 17.4% per year In particular, the average export and import value in the entire period increased by 16.2% and 23.8% per year, respectively (see figure 2.1)
The United States remains Vietnam's largest importer, representing 20% of the country's total export value, while also being the fifth largest supplier of goods to Vietnam, accounting for 5% of its total import value Key exports from Vietnam to the US include apparel and clothing accessories, electrical machinery, wood products, seafood, and various beverages such as coffee and tea Conversely, Vietnam primarily imports cotton, machinery, animal fodder, plastics, and pharmaceutical products from the US.
According to the Ministry of Planning and Investment, the United States ranks third among the 200 countries and territories engaged in foreign trade with Vietnam, following China and South Korea Vietnam has consistently maintained a trade surplus with the US, reaching nearly $35 billion in 2018, which positions Vietnam as the sixth-largest country with a trade surplus with the US This situation raises concerns about potential tariffs on Vietnamese exports, similar to those imposed on China However, Nicholas Chapman (2018) expressed optimism regarding these concerns, highlighting the expansion of bilateral trade and investment discussed at the 2017 APEC summit Nonetheless, the future remains uncertain.
US foreign direct investment (FDI) flows to Vietnam are increasing, with the US ranking 11th among Vietnam's top investors in 2018, contributing approximately 550 billion USD Major American companies like Intel, General Electric, Microsoft, and AIG are actively engaged in the Vietnamese market However, the reported 550 billion USD may not fully capture the extent of US investment in Vietnam, as several corporations, including Intel, Coca-Cola, Procter & Gamble, and ConocoPhillips, channel their investments through subsidiaries and branches located in markets such as the British Virgin Islands, Hong Kong, and Singapore.
Regarding to “non-market economy”, Vietnam is still considered as a non-market economy and the similarity with China's economic type makes Vietnam be branded as a
Vietnam, often referred to as "new China" or "mini China," faced significant challenges when negotiating its entry into the WTO, particularly being labeled a non-market economy in anti-dumping investigations due to external pressures To achieve market economy status, Vietnam must fulfill three key criteria: ensuring the VND is a freely convertible currency, minimizing state interference in business decisions, and fostering fair market competition Despite ongoing negotiations with the US to enhance bilateral trade, Vietnam remains vigilant regarding the potential repercussions of the trade war, which will be explored further in section 2.2.
2.1.2 The trade relationship between China and Vietnam a Trade relations
Figure 2.2 Vietnam's import-export to China (2009-2018)
Source: Trademap data compiled by author
China is currently the second largest economy in the world In 2019, bilateral trade between Vietnam and China increased by 11.3%, reached nearly 106 billion USD, making
Vietnam's export value to ChinaVietnam's import value to ChinaVietnam's turnover growth rate to China
China has emerged as Vietnam's largest trading partner, significantly influencing the country's export dynamics It stands out as the top importer of Vietnamese agricultural and aquatic products Notably, the composition of Vietnam's exports to China has improved, with a rising share of manufactured goods and agricultural, forestry, and fishery products, while the export of raw materials, fuels, and minerals has decreased.
For years, China has been Vietnam's largest trading partner, with Vietnam being one of China's smaller partners in ASEAN However, since July 2018, Vietnam has surpassed Malaysia to become China's largest trade partner in ASEAN for the first time In the first half of 2018, trade revenues between Vietnam and China reached approximately 66 billion USD, with an average monthly trade turnover exceeding 10 billion USD During this period, China's exports to Vietnam grew by an estimated 23.5%, while Vietnam's exports to China surged by 37.4%.
Vietnam has consistently experienced a trade deficit with China, amounting to $21.6 billion from January to November 2018 This figure may be even higher due to significant informal cross-border trade Despite cooperation agreements aimed at regulating mutual imports and exports, Vietnam continues to face challenges with a substantial influx of counterfeit and low-quality goods from China This situation complicates Vietnam's ability to monitor import flows and maintain quality standards, ultimately harming the interests of Vietnamese consumers.
In 2018, China emerged as Vietnam's fifth largest foreign investor, with a record foreign direct investment (FDI) of nearly 2.5 billion USD, marking a 14.3% increase from 2017 During the inaugural China International Import Fair (CIIE 2018), representatives from both countries engaged in discussions on various economic agreements Chinese companies expressed their appreciation for the enhancements in Vietnam's investment climate and expressed a strong interest in expanding their investments in high technology and environmentally sustainable sectors, aiming to contribute to Vietnam's social and economic growth and job creation.
Figure 2.3 Vietnam’s FDI flow in 2018 (unit: million US dollar)
China's investment in Vietnam has increasingly diversified across various forms and sectors As of March 2017, the processing and manufacturing industries accounted for approximately 61.4% of total Chinese investment, followed by the production and distribution of electricity, gas, water, and air conditioning at 18.2%, and real estate at 5.6% Chinese investments are primarily structured through joint ventures, business cooperation contracts, joint stock companies, and contract types such as build-operate-transfer (BOT), build-transfer-operate (BTO), and build-transfer (BT) agreements.
Before 2010, foreign direct investment (FDI) inflows from China to Vietnam were relatively low, with China not ranking among the top 10 investors However, since 2011, there has been a significant increase in China's investment in Vietnam, especially following the signing of the Trans-Pacific Partnership (TPP) in 2015, which has positioned China consistently among the top 10 investors in the country, capitalizing on opportunities presented by free trade agreements (FTAs).
Opportunities & challenges
In the short term, the US-China trade war has minimal impact on Vietnam's economy However, if the conflict escalates and more goods are subjected to tariffs, Vietnam could face significant negative consequences due to its efforts to integrate deeply into the global production chain This article explores both the positive and negative effects of the trade war on Vietnam.
Japan Korea Singapore Hong Kong China US war will be analyzed in three major aspects: Export – Import activities, Foreign direct investment and Workforce
2.2.1.1 Opportunities from Export – Import activities a Vietnamese exporters can gain market share of the US and China
Vietnam's import and export activities present significant opportunities, particularly in capturing market share in the US and China As tariffs rise in these two countries, local corporations are increasingly seeking alternative markets, making Vietnam an attractive option Consequently, Vietnamese enterprises have the potential to significantly increase their export volumes.
Figure 2.4 Vietnam's export value to large markets (unit: billion US dollar)
Source: General Statistics Office of Vietnam
In 2018, the US primarily targeted Chinese consumer goods, including mobile phones and electronic appliances, along with intermediate goods essential for manufacturing, such as computer components and auto parts In contrast, Vietnam's top exports comprised electrical machinery and equipment (39% of total exports), footwear (7.9%), and machinery, including computers (5.5%), which serve as effective substitutes for the taxed Chinese products Consequently, US corporations have increasingly turned to Vietnam as an alternative source for these goods.
EU US China Korea Japan Hong Kong
Jan & Feb 2018 Jan & Feb 2019 can build partnerships with Vietnamese businesses to import these products from Vietnam instead of China
In the first two months of 2019, Vietnam experienced a significant shift in its export dynamics, with a nearly 35% increase in export value to the United States compared to the same period in the previous year This notable growth highlights the changing landscape of Vietnam's trade with major markets.
Figure 2.5 The change in export/import value of Vietnam's phones and components
Source: General Statistics Office of Vietnam
Figure 2.5 was given to clarify this opportunity for a specific industry In January
In 2019, Vietnam experienced a 16.3% decline in mobile phone export turnover overall; however, exports to the US surged significantly In January, the export value to the US reached nearly $473 million, a remarkable 2.2-fold increase compared to the previous January February saw this trend continue, with exports hitting a record high and rising 330% year-on-year As Samsung's largest mobile phone manufacturer, Vietnam produces approximately 240 million units annually If foreign demand increases and product quality aligns with US standards, Vietnam could gradually capture a larger share of the US market, potentially displacing Chinese brands.
Export to the US Import from China b Vietnamese importers can buy commodities at lower prices
As tariff barriers were implemented, foreign businesses sought new markets or aimed to boost exports in existing ones to prevent surplus goods in their home countries This shift allows Vietnamese importers to acquire products at more affordable prices.
In 2017, Vietnam imported $1.5 billion worth of corn and $707 million in soybeans, primarily sourcing soybeans from the US ($330 million) and Argentina ($250 million), while corn was mainly imported from Argentina ($764 million) and Brazil ($464 million) Should US prices for soybeans and corn decrease, Vietnamese companies may increase their imports from the US, benefiting local animal feed producers like Masan Nutri-Science and Dabaco.
Figure 2.6 Vietnam's soybean import volume to large markets
In April 2018, the volume of soybeans imported from the US to Vietnam began to shift as China announced a potential 25% tariff on US goods, including soybeans That year, Vietnam invested over 504 million USD to import more than 1.2 million tons of soybeans from the US, making it the largest supplier for the country Additionally, US soybeans were purchased at a more competitive average price of 413.6 USD per ton, compared to 477 USD per ton from Canada and 445 USD per ton from Brazil This price advantage may open up opportunities for Vietnamese enterprises to engage with more potential partners.
Excessive imports in Vietnam could lead to noticeable competition issues, particularly as the country relies heavily on exports Past experiences have shown that when importing nations reject Vietnamese exports, it results in an oversupply of goods Consequently, sellers may need to drastically lower prices to clear inventory The ongoing trade war provides Vietnamese companies with insights into import and export volumes, particularly concerning the tariff-affected goods between the US and China, enabling them to swiftly seek new partnerships before an oversupply occurs.
2.2.1.2 Challenges from Export – Import activities a Vietnam can become the US's next tax target
The first challenge comes from the potential increase in trade surplus with the US
Vietnamese enterprises have the potential to increase their exports to the United States, especially amid the ongoing trade tensions between the US and China aimed at improving the US trade balance While some experts argue that trade balance figures do not fully reflect a country's economic health, the US is determined to maintain its competitive edge over other nations Currently, Vietnam remains in a relatively secure position; however, if the trade balance disparity between Vietnam and the US widens significantly, Vietnam could face the risk of being targeted by the US for unfair tax rates Additionally, there are concerns about China exporting goods labeled as "made in Vietnam," further complicating the trade dynamics.
Vietnam's exports may face challenges as they become intertwined with Chinese goods, potentially leading to increased scrutiny under new US tariff barriers Rather than exporting directly to the US, China might use Vietnam as an intermediary, allowing Chinese exporters to benefit from lower tax rates on products labeled "made in Vietnam." Additionally, Chinese companies could collaborate with Vietnamese enterprises to sell finished goods, which are then re-exported to the US as "made in Vietnam" products This practice has occurred previously, impacting Vietnamese businesses, particularly in sectors like iron and steel.
In 2015, the US imposed anti-dumping and anti-subsidy duties on Chinese steel, leading American steelmakers to claim that Chinese products were being redirected to other countries to avoid these tariffs Consequently, on May 22, 2018, the US Commerce Department enacted significant duties on steel imports from Vietnam that were determined to have originated in China, as they were found to be circumventing the imposed tariffs.
The US customs authorities have imposed significant anti-dumping and countervailing duties on imports of cold-rolled steel from Vietnam, specifically 199.76% and 256.44%, due to the use of Chinese-origin substrate Similarly, corrosion-resistant steel from Vietnam is subject to anti-dumping duties of 199.43% and anti-subsidy duties of 39.05% The US has determined that 90% of the value of these steel products originates from China, leading to new duties that will hinder Vietnamese enterprises from importing Chinese steel for processing and subsequent export.
Recent data indicates a decline in phone imports from China, suggesting that Vietnamese enterprises are proactively limiting these imports The U.S tariffs imposed on China make it counterproductive for the U.S to import "made in China" phones from Vietnam Consequently, similar to the tariffs on Vietnam's steel, "made in Vietnam" phones could face equivalent tax rates as those from China This scenario highlights the growing competitiveness of the Vietnamese market.
The increasing volume of foreign goods entering the Vietnamese market, driven by tariff barriers from the US and China, poses a challenge to local industries A significant number of Vietnamese consumers favor imported products, including food, pharmaceuticals, electronics, and cars, often opting for goods from the EU, US, and Japan despite their higher prices due to perceived quality and reliability In contrast, "made in China" products appeal to consumers through their diverse colors, packaging, and designs, which could quickly erode the market share of Vietnamese businesses in the domestic landscape.
RECOMMENDATIONS
Solutions for Vietnamese enterprises
3.1.1 To take advantages of the US-China trade war a Continuously update information about the US-China trade war
Vietnamese enterprises must swiftly conduct market research on the business environments of the US and China, focusing on the list of Chinese products subject to US import duties and the commodities China has retaliated against This will help identify opportunities for diversification, expansion, and enhanced export activities in these markets Additionally, it is crucial for Vietnamese businesses to engage with Chinese and US investors promptly to attract investment into Vietnam, especially as both countries' markets face challenges.
Vietnamese enterprises are positioned to swiftly capture market share in the US and China, outpacing other Asian competitors amid the trade war Notably, both Vietnam and Malaysia stand to gain significantly, especially in the manufacturing of intermediate components and consumer electronics like mobile phones and laptops In 2019, the US saw a dramatic increase in mobile phone imports from Vietnam, with major tech companies such as Samsung and Intel reaping substantial profits from the trade conflict This trend suggests that other sectors, including textiles and apparel, could similarly benefit by innovating domestic products.
To harness Foreign Direct Investment (FDI) for domestic industries and capitalize on export-import opportunities, Vietnamese enterprises should focus on enhancing design and quality to boost the value-added of their products By doing so, they can not only strengthen their competitiveness in the local market but also establish their brands internationally For instance, transforming agricultural products into ready-to-eat dishes, improving packaging for high-quality goods, and offering product sets can significantly elevate their market presence.
Vietnam's wood manufacturing industry is poised for significant growth, with an increasing number of orders from the US for both wooden furniture and toys The country has the potential to become the world's second-largest furniture exporter, trailing only China, within the next 7-8 years Despite having strong production capabilities, Vietnamese enterprises have historically underinvested in their supply chain stages, often exporting furniture designs owned by customers, which limits their added value To capitalize on emerging trends like multifunctional furniture, Vietnamese companies should collaborate with design-focused universities, hold design competitions, and form joint ventures with foreign firms to innovate their offerings By reorienting the wood-processing sector to focus on design, branding, and expanding distribution channels, Vietnam could significantly increase its revenue in the global market.
The US-China trade war has positively impacted Vietnam by boosting export volumes, reducing import prices, and increasing foreign direct investment (FDI) However, the crucial question remains whether Vietnamese enterprises can seize these opportunities They need to find ways to export large volumes using deferred payment methods without the concern of insufficient working capital Additionally, it is essential to evaluate whether the government's foreign currency lending policy is robust enough to support substantial orders of lower-priced imports.
A strong connection between government and businesses is crucial for navigating challenges like the US-China trade war The government can support domestic companies by providing timely information and facilitating discussions on existing issues Initiatives such as organizing international trade fairs by the Ministry of Industry and Trade can help attract potential partners Additionally, financial institutions should consider streamlining foreign currency borrowing to enable importers to make significant orders and support exporters Furthermore, businesses must adopt stricter food hygiene standards and promote the development of clean, high-quality agricultural products to compete effectively with Chinese imports.
3.1.2 To limit negative impacts of the US-China trade war a Strengthen forecasting
Vietnamese enterprises must carefully analyze the list of taxed goods and estimate the volume likely to shift from the US and China into Vietnam As import prices decrease, importers are inclined to purchase larger quantities, which, combined with current production capacities and inefficient supply chain management, can lead to increased expenses such as inventory and transportation costs Therefore, enhancing forecasting is essential for developing strategic response plans Additionally, it is crucial to prepare in advance and implement measures to swiftly address potential technical and administrative barriers imposed by the US and China that could restrict Vietnamese imports.
Forecasting is crucial for managing exchange rate risks, particularly for Vietnamese enterprises While the US dollar's value remains stable despite recent fluctuations, attention must be focused on the depreciating Chinese Yuan, which is expected to weaken further against the US dollar due to ongoing trade tensions China's restrictions on US investments and government bond purchases aim to mitigate the impacts of its currency devaluation If the Vietnamese Dong (VND) depreciates to maintain export competitiveness, it could lead to foreign investors withdrawing assets, negatively impacting inflation and growth Conversely, a fixed VND may result in increased Chinese imports, worsening Vietnam's trade balance Thus, it is essential for Vietnamese businesses to stay informed and forecast financial trends to make informed decisions and proactively address trade protection litigation.
To mitigate the risks associated with Chinese exports falsely labeled as "made in Vietnam" and avoid becoming a target for U.S taxes, Vietnamese enterprises must adhere to WTO regulations regarding product origin This requires employees to possess a strong understanding of international trade laws Furthermore, companies should focus on self-sourcing input materials to enhance regional value content, aligning with Vietnam's Free Trade Agreement (FTA) requirements.
Effective coordination between national ministries and related businesses is crucial for ensuring transparency in Vietnam's exports Vietnamese enterprises must avoid origin fraud and remain vigilant in monitoring the market to provide timely information to management agencies regarding any suspicious activities Additionally, they should exercise caution with investment proposals from China, refraining from collaborating with Chinese factories to import semi-finished and finished products labeled as "made in Vietnam" for export By adhering to these practices, Vietnam's manufacturing and export sectors can mitigate the risk of facing anti-evasion and trade protection measures in key markets such as the US and the EU.
Suggestions for Vietnamese government in the long term
a Attract high value-added FDI projects
To fully leverage the advantages of foreign direct investment (FDI), Vietnam must move beyond its reliance on cheap labor, as regional competitors are quickly advancing It is essential for Vietnam to identify its priority sectors, recognizing that while the manufacturing and processing industry may position the country as the "world's factory," it risks remaining a low-value player in the global value chain In contrast, sectors such as pharmaceuticals, financial services, IT, and education offer higher added value and mid-term growth potential To achieve sustainable economic development and enhance competitiveness, Vietnam must attract high-tech investments and modern technologies, facilitating a restructuring of its economy and enabling deeper integration into the global supply chain Additionally, accelerating economic reform is crucial for achieving these goals.
As mentioned above, Vietnam may face more difficulties from the US market due to its non-market economy, especially in anti-dumping and countervailing investigations
For Vietnam to be recognized as a market economy, it must meet three essential criteria: the Vietnamese dong (VND) should be a freely convertible currency, the government must refrain from interfering in business decisions, and the market must promote fair competition Currently, state-owned enterprises hold a significant position and receive preferential treatment over private enterprises To enhance its economic standing and gain recognition from the US as a market economy, Vietnam must expedite its economic reforms, thereby fostering a more conducive business environment for both domestic private companies and foreign direct investment (FDI) enterprises.
Vietnam can enhance its economic growth by fortifying its financial system, privatizing state-owned enterprises, and liberalizing capital accounts Additionally, the country should focus on improving infrastructure and technology To attract foreign investment, it is essential to create a more transparent legal environment, minimize administrative burdens for international corporations, and reform the legal framework to ensure a stable and predictable business climate.
The Vietnamese government should prioritize substantial investments in human resources to foster start-up trends, as the young generation is increasingly asserting its influence and will play a crucial role in Vietnam's integration into the global economy To attract higher-value industries and enhance competitiveness against skilled regional workers, it is essential to improve labor quality This strategic focus will enable Vietnamese enterprises to capitalize on opportunities arising from the US-China trade war and effectively address trade defense disputes.
Vietnamese authorities should assess the production and export activities of each commodity sector and the anti-dumping policies of various countries to compile a list of potential taxed commodities Additionally, the government must establish a comprehensive database containing information on export markets, international trade laws, and foreign trade protection policies, ensuring that businesses receive essential information to prevent legal disputes.
To effectively address trade disputes, it is essential to promote government-level negotiations Vietnam should adopt a flexible diplomatic approach to showcase its production capabilities and demonstrate that its product pricing is competitive, without resorting to dumping or engaging in commercial fraud.
Vietnam should enhance support for enterprises seeking to appeal within the World Trade Organization (WTO) framework to safeguard national interests This includes establishing a financial support fund for Vietnamese businesses to pursue re-trials, offering detailed information on the appeal process, and recommending local attorneys in the host country to assist them effectively.
To enhance Vietnam's international reputation, the government must implement robust measures for quality and origin control, combat commercial fraud, and enforce strict penalties on violators A critical focus should be placed on regulating the flow of Chinese goods through informal cross-border channels Additionally, it is essential to prioritize the protection of Vietnam's ecological environment.
Vietnam must take a firmer stance against certain investment projects, including cement and iron-steel manufacturing and oil refineries, to meet its green growth objectives Establishing robust environmental impact assessment standards and enhancing management and sanctioning measures are crucial steps in this process The Vietnamese government cannot overlook this imperative, as the detrimental effects of environmentally harmful projects on public health are significant Furthermore, neglecting these issues could erode public trust and foster skepticism towards foreign investments, particularly from China.
This chapter outlines strategies for the Vietnamese government and businesses to capitalize on opportunities and mitigate negative effects stemming from the US-China trade war To thrive amidst the trade conflict, Vietnamese enterprises need to stay informed about emerging business prospects and innovate their products to enhance competitiveness Collaboration with domestic companies, industry associations, and government bodies is crucial for addressing challenges and seeking assistance Additionally, the proactive identification of challenges by Vietnamese enterprises, coupled with government intervention, can help navigate this complex landscape effectively.
Vietnam aims to attract foreign direct investment (FDI) strategically while reforming its economy and enhancing human resources This multifaceted approach will strengthen the country's resilience against potential vulnerabilities arising from escalations in the US-China trade war or other trade conflicts.
CONCLUSION
Summary
Chapter 1 explores the concept of "trade war" through the lens of the US-China trade conflict, examining its definition, causes, and impacts A trade war arises from protectionist measures where countries impose taxes or trade barriers in retaliation to those of others, aiming to protect domestic jobs, improve trade deficits, support emerging industries, and generate revenue However, such conflicts often lead to negative long-term consequences, including slow economic growth, rising unemployment, and weakened domestic industries The US-China trade war can be divided into three phases: the starting phase (January 22, 2018 - March 22, 2018), the escalation phase (March 23, 2018 - September 23, 2018), and the truce phase (September 25, 2018 - present) Both nations employed commercial and non-commercial strategies to counter each other, with the US focusing on improving trade balance and establishing fair trade, while China sought to mitigate tensions and retaliate The trade war has significantly affected investment, production, and import-export activities in both countries, leading to a deteriorating trade balance, investment diversion, and increased production costs, as they shift their interests to other nations.
Chapter 2 indicated Vietnam’s relations with China and the US in terms of trade and investment, moreover analyzed opportunities and challenges to Export – Import activities, Foreign direct investment and Workforce While previous studies can only be considered a first step towards a more profound understanding of impacts on a specific region, this research has fully analyzed the effects of the US-China trade war on Vietnam There are a lot of opportunities and challenges coming from both the trade tension and Vietnam The domestic enterprises can export a greater volume, import goods at cheaper prices, attract more FDI, support related industries and create more jobs However, regional competitors,
Vietnam faces challenges in capitalizing on opportunities from the US-China trade war due to uncertain Chinese investments and existing vulnerabilities The crucial factor will be whether Vietnamese enterprises can effectively navigate these obstacles as they arise.
For this reason, chapter 3 gave solutions for both Vietnamese government and enterprises to leverage opportunities and minimize negative impacts which come from the
The US-China trade war presents a unique opportunity for Vietnamese enterprises to enhance their competitiveness by staying informed about market changes and innovating their products Collaboration with domestic businesses, associations, and government entities is crucial for addressing challenges and seeking support By accurately assessing their capabilities and leveraging government intervention, Vietnamese companies can effectively navigate the complexities of the trade landscape.
To strengthen its economy and support domestic enterprises, the Vietnamese government should focus on attracting foreign direct investment (FDI) judiciously, reforming the economy, and developing human resources By implementing these strategies, Vietnam can better withstand the impacts of escalating trade conflicts, such as the US-China trade war.
This study addresses significant gaps in existing research by objectively clarifying the content of the US-China trade war and thoroughly exploring its impacts on Vietnam, including effects on the labor force, domestic and foreign enterprises, and specific industries It supports all findings with practical examples and up-to-date figures, while also providing detailed recommendations tailored for Vietnamese enterprises and the government, moving beyond the general solutions offered in earlier studies.
Limitations
To prevent discrepancies between the content and the title, the research offers a broad overview rather than a detailed analysis of opportunities and challenges across specific industries For instance, the report briefly addresses the transportation and logistics sectors in a concise statement (refer to section 2.2.1.c.).
The thesis utilized qualitative methods to analyze trends, ultimately lacking quantitative testing to evaluate the effects of the US-China trade war on Vietnam.
The writer's limited language skills may lead to imprecise descriptions of certain words or phrases, despite the use of specialized dictionaries Consequently, some grammatical errors and incorrect word usage are inevitable.
Research outlook
Future research should focus on the limitations identified in the study, particularly exploring whether Vietnam's transportation and logistics sectors adequately support its import and export activities With the rapid growth of e-commerce both globally and in Vietnam, there is an urgent need for efficient logistics solutions Further investigation is essential to navigate the complexities of Vietnam's logistics sector, which is emerging as one of the country's most promising industries.
Future research should build upon and validate these preliminary findings through quantitative methods A widely utilized econometric model for predicting short-term economic fluctuations is the Error Correction Model (ECM), which links long-term relationship assumptions with short-term changes, allowing for a clear assessment of the effectiveness of government recommendations.
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