Viet­nam’s com­mu­nist free traders see pos­i­tives in Trump tar­iffs

The Myanmar Times - Weekend - - International Business - SEPTEM­BER 21, 2018

SIT­TING down for an in­ter­view at Viet­nam’s Gov­ern­ment Of­fice in Hanoi, Prime Min­is­ter Nguyen Xuan Phuc is a man in a hurry.

As an aide wipes away sweat from his fore­head, Phuc ex­plains that he’s run­ning late and needs to soon rush off to a meet­ing with in­vestors in town for a World Eco­nomic Fo­rum event. His mes­sage, he says, is sim­ple: Viet­nam is do­ing ev­ery­thing it can to emerge from the Us-china trade war un­scathed – and po­ten­tially even bet­ter off than be­fore.

“It is bring­ing both op­por­tu­ni­ties and chal­lenges to us,” Phuc said, wav­ing off staff mem­bers who try to end the in­ter­view af­ter only a hand­ful of ques­tions. “But more op­por­tu­ni­ties than chal­lenges.”

Viet­nam’s lead­ers have rea­son to hus­tle: The coun­try’s econ­omy is more de­pen­dent on trade than any other na­tion in Asia apart from Sin­ga­pore, re­ly­ing on sales of smart­phones, shoes and shrimp to stoke one of the fastest growth rates in the world. More trade bar­ri­ers, and higher prices from sup­pli­ers, put that ex­pan­sion at risk.

Yet the long-term op­por­tu­nity is also im­pos­si­ble to ig­nore. As Pres­i­dent Don­ald Trump threat­ens tar­iffs on all goods from China, com­pa­nies al­ready bur­dened by higher wage costs are ac­cel­er­at­ing plans to shift pro­duc­tion to other coun­tries – and neigh­bour­ing Viet­nam is well placed to ben­e­fit.

Surg­ing growth The na­tion of 96 mil­lion peo­ple has em­braced free-mar­ket re­forms over the past few decades, lead­ing to surg­ing growth un­der an au­thor­i­tar­ian one-party Com­mu­nist gov­ern­ment that of­fers the same po­lit­i­cal sta­bil­ity as China. What’s more, work­ers in Viet­nam are two-thirds cheaper than in China and nearly just as pro­duc­tive, ac­cord­ing to a July re­port by Vi­nacap­i­tal, an in­vest­ment com­pany with US$1.8 bil­lion (K2.8 tril­lion) in as­sets.

Sev­eral large man­u­fac­tur­ers have al­ready made sig­nif­i­cant bets on Viet­nam. The big­gest is Sam­sung Elec­tron­ics Co, which ac­counted for about a quar­ter of the coun­try’s ex­ports last year. Other com­pa­nies such as LG Elec­tron­ics, In­tel Corp and Nes­tle also have a siz­able pres­ence.

To make Viet­nam an at­trac­tive man­u­fac­tur­ing des­ti­na­tion, Phuc’s gov­ern­ment has signed as many free­trade agree­ments as pos­si­ble. It just reached a deal with the Euro­pean Union, soon af­ter ink­ing the re­vamped Trans-pa­cific Part­ner­ship, which Trump with­drew from when he took of­fice last year.

“Viet­nam has the busiest trade ne­go­ti­a­tion team in the ASEAN,’’ said Eugenia Vic­torino, an econ­o­mist at Aus­tralia & New Zealand Bank­ing Group in Sin­ga­pore.

That hard work has paid off in re­cent years as Viet­nam has moved up the value chain. Elec­tron­ics now ac­count for a third of the coun­try’s overseas sales, up from 5 per­cent a decade ago, while ex­ports of gar­ments and agri­cul­tural goods re­main strong.

Es­cap­ing Trump’s wrath Viet­nam has also man­aged to pull off a rare feat: Ex­pand­ing sales to the US while largely avoid­ing the wrath of Trump over a grow­ing trade im­bal­ance. It recorded the sixth-high­est trade sur­plus with the US in 2017, af­ter China, Mex­ico, Ger­many, Canada and Ja­pan – all of which have been tar­gets of Trump’s at­tacks.

While Trump could start pil­ing on Viet­nam any­time, he’s got rea­son to hold fire. Most of Viet­nam’s ex­ports to Amer­ica con­sisted of low-end gar­ments and footwear. High-tech sales to the US amounted to about $8 bil­lion last year, com­pared with $250 bil­lion for China, ac­cord­ing to Vi­nacap­i­tal.

The other in­cen­tive is strate­gic. De­spite fight­ing a war that killed up­wards of sev­eral mil­lion peo­ple, the US and Viet­nam are now mov­ing closer to­gether mil­i­tar­ily to counter China’s grow­ing power – par­tic­u­larly in the dis­puted South China Sea.

Amer­i­cans may be more pop­u­lar in Viet­nam than any­where else on the planet. A Pew Re­search Cen­ter sur­vey last year found that 84pc of the coun­try viewed Amer­i­cans favourably, the most among the 36 coun­tries sur­veyed. That com­pares with 10pc for China, the low­est of any na­tion.

For Viet­namese au­thor­i­ties, the wide­spread an­tipa­thy to­ward China is a tricky is­sue. In June, thou­sands of Viet­namese in Ho Chi Minh City protested spe­cial eco­nomic zones with 99year land leases over fears they would lead to Chi­nese en­croach­ment, as well as cy­ber­se­cu­rity leg­is­la­tion that could curb on­line free­doms.

The gov­ern­ment ended up de­lay­ing the land bill and mov­ing for­ward with tougher re­stric­tions on the in­ter­net, show­ing that it has lit­tle tol­er­ance for dis­sent. Ac­tivists and blog­gers who chal­lenge the le­git­i­macy of the party and gov­ern­ment are fre­quently jailed. Just last week, Viet­nam de­nied en­try to two hu­man rights of­fi­cials in­vited to speak at the World Eco­nomic Fo­rum event.

At the same time, Viet­nam has pushed ahead with re­forms that could boost growth, such as fight­ing cor­rup­tion, strength­en­ing the bank­ing sys­tem and pri­vatis­ing state en­ter­prises. Although the pace of change has been slow, the gov­ern­ment re­alises that eco­nomic per­for­mance un­der­pins the party’s sta­bil­ity.

“If peo­ple are bet­ter off, they will pre­fer the sta­tus quo,” said Le Hong Hiep, a fel­low at the In­sti­tute of South­east Asian Stud­ies in Sin­ga­pore. “The party can­not tol­er­ate po­lit­i­cal risk but it can to a cer­tain ex­tent adopt eco­nomic lib­er­al­i­sa­tion as long as such mea­sures do not un­der­mine the party’s rule.”

In the in­ter­view, Phuc said the gov­ern­ment is look­ing for “new ways” to boost growth and “will not let our peo­ple’s lives be af­fected” by trade ten­sions. He made sure to tread care­fully on for­eign af­fairs, say­ing Viet­nam wants friendly ties with both the US and China.

Asked about ter­ri­to­rial dis­putes with China, Phuc said Viet­nam wants in­ter­na­tional law to be re­spected in the South China Sea, an in­di­rect swipe at Bei­jing. Still, it’s hardly enough to cre­ate any waves – a strat­egy that Phuc hopes will make Viet­nam even stronger in the years ahead.

“We are not fight­ing against any­one,” he said. “We need each oth­ers to grow, so we will be part­ners with ev­ery­one.” – Bloomberg

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