CHAPTER 2. THE IMPACTS OF THE US-CHINA TRADE WAR TO VIETNAM
2.1. Vietnam’s trade relations with China and the US
a. Trade relations
In 1995, the formal normalization of U.S.-Vietnam diplomatic relations took place, marking the beginning of trade relationship between the two nations. Since then, the US relations with Vietnam have become deeper and more diverse, especially when Vietnam participated in WTO in 2007. As of 2018, import and export turnover with the US has increased to more than 60 billion USD, 133 times higher than it was in 1995 with 450 million USD.
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)
With a high growth rate, currently, the US still maintains its position as the Vietnam's largest importer, accounting for 20% of the total export value of Vietnam. At the same time, the US is the 5th largest market for supplying goods to Vietnam, accounting for 5% of Vietnam’s total import value. The products exported to the US are very diverse with the key groups are articles of apparel and clothing accessories; electrical machinery; wood and wood products; sea foods; coffee, tea, maté and spices… Similarly, Vietnam mainly import the US’s cotton; machinery and mechanical appliances; animal fodder; plastics and articles thereof; pharmaceutical products…
According to Ministry of Planning and Investment, the US ranks 3rd among 200 countries and territories having foreign trade relations with Vietnam (after China and South Korea). Additionally, Vietnam has continuously maintained a trade surplus with the US, even in 2018, the surplus reached nearly 35 billion USD (USITC, 2018). This figure makes Vietnam ranked sixth in the countries which have the biggest trade surplus with the US, raising concerns about unwanted tariffs on Vietnam’s exports as it did for China. Nicholas Chapman (2018) gave reasons to be optimistic about this concern and proved by citing bilateral trade and investment expansion terms between the US and Vietnam at the 2017 APEC summit. From my perspective, nothing can be guaranteed in the future.
b. Investment relations
Not only import and export activities, but the US FDI flows to Vietnam is on the rise. The US ranked 11th in the list of the top Vietnam’s investors in 2018 (550 billion USD). Major investors of the United States are Intel, General Electric, Microsoft, AIG…
These corporations are running quite actively and effectively. However, it can be said that the 550 billion USD received does not fully reflect US investment in Vietnam. This because some firms such as Intel, Coca-Cola, Procter & Gamble, and ConocoPhillips have invested into Vietnam through subsidiaries and branches based in other 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
“new China” or “mini China” (Tho Tran, 2018). When the country negotiated to join the WTO, under some partners’ pressure, Vietnam had to accept being considered a non-market economy in anti-dumping and countervailing investigations with its exports. And so did China. To be recognized as a market economy, Vietnam must satisfy three conditions: the VND must be a free convertible currency, the state does not interfere with business decisions and the market must be a fair competition. Although Vietnam and the US have had negotiations to promote bilateral trade, we still have to watch out for the effects of the trade war. These impacts will be presented in detail in sections 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
0 5 10 15 20 25
0 10 20 30 40 50 60 70
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
%
Billion USD
Vietnam's export value to China Vietnam's import value to China
Vietnam's turnover growth rate to China
China become Vietnam's largest trading partner (see Figure 2.2). China is also the largest importer of Vietnamese agricultural and aquatic products. The structure of Vietnam's exports to China has changed positively. It gradually increased the proportion of manufactured goods and agricultural, forestry and fishery products; reduced the proportion of exports of raw materials, fuels and minerals meanwhile.
For years, China has always been Vietnam's largest trading partner while Vietnam is one of the China’s small partners among ASEAN countries. Since July 2018, Vietnam has overtaken Malaysia to become the largest trade partner of China in ASEAN for the first time. Total trade revenues between Vietnam and China reached about 66 billion USD in the first half of 2018. On average, monthly trade turnover between the two countries having exceeded 10 billion USD. During the period, the growth rate of China’s exports to Vietnam was estimated to hit 23.5%, and in comparison, Vietnam’s reached 37.4%.
However, engaged in exporting and importing between Vietnam and China over the years always in deficit leaning toward Vietnam. From January to November 2018, Vietnam had trade deficit of 21.6 billion USD from China. In fact, these numbers may be much larger due to the volume of goods moving in terms of informal cross-border trade.
Although the two countries have cooperation agreements to ensure and certify mutual imports and exports, the number of counterfeit and poor quality goods being exported to Vietnam is still extremely large (Khổng Văn Thắng, 2017). It is difficult for Vietnam to keep an eye on import flows and the quality of imports, and worsen Vietnamese consumers’ interests at the same time.
b. Investment
With a record FDI of nearly 2.5 billion USD in 2018, increasing by 14.3% compared to 2017, China became Vietnam's fifth largest foreign investor (see Figure 2.3). At the first China International Import Fair (CIIE 2018), Vietnamese and Chinese representatives discussed many economic agreements. Chinese enterprises appreciated the improvements in Vietnam's investment environment over the past time. In addition, they affirmed their desire to expand investment in high technology and environmentally friendly fields, contributing to the social and economic development and job creation of Vietnam.
Figure 2.3. Vietnam’s FDI flow in 2018 (unit: million US dollar)
Source: Foreign Investment Agency It can be assessed that China's investment activities in Vietnam are more and more diversified in both form and investment sector. As of March 2017, Chinese investment is mostly in processing and manufacturing industries, making up about 61.4% of total investment capital. The second is the production and distribution of electricity, gas, water and air conditioning at 18.2% and real estate at 5.6%. Chinese projects are invested in the form of joint ventures, business cooperation contracts, or joint stock companies; build- operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) contracts (Foreign Investment Agency, 2018).
In fact, FDI inflows from China before 2010 into Vietnam were quite modest. China hardly is in the top 10 countries investing in Vietnam. Since 2011, however, it has changed significantly and continuously risen in the ranking position. In particular, after signing the TPP with Vietnam in 2015, China is often in the top 10 investors of Vietnam to catch up the opportunities from FTAs.