Vietnam Won the U.S.-China Trade War But Is Now in Trouble Itself

The country is benefiting so much from the impasse that it’s at risk of being hit with punitive American duties.

By Xuan Quynh Nguyen and Nguyen Dieu Tu Uyen

Bau Bang in Binh Duong province is one of several industrial parks in Vietnam reporting a surge of interest from foreign manufacturers.

U.S. President Trump’s trade war has Peter Chang scrambling. 

Sixty components makers that supply Foxconn Technology Group and Samsung Electronics Co. have come knocking at his industrial park northeast of Hanoi in the past three months. 

They’re looking to skirt U.S. tariffs on Chinese products. 

“They need to get into Vietnam now—immediately,” says Chang, deputy general director of Shun Far Land Development Co., which operates the Thuan Thanh II Industrial Park, about a 45-minute drive from Hanoi. 

“We have our building team waiting.”
Chang is hastily negotiating with neighboring landowners to convert rice fields into assembly lines to take advantage of the sudden boom in business. 

He realizes, though, that it may not last. 

Even as foreign companies are lining up at Vietnam’s industrial parks, the Trump administration is increasing pressure on the country’s communist leaders to curb its growing trade surplus with the U.S.
Vietnam is caught between contradictory forces unleashed by the U.S.-China trade war: The country of 96 million people is benefiting so much from the impasse that it, too, is at risk of being hit with punitive American duties. 

Its leaders are trying to convince the Trump administration that they’re fair traders as they seek to protect exports to the U.S., which equaled 20% of gross domestic product last year and almost 26% in the first half of 2019.
The country’s young and comparatively cheap labor force, stable government, and business-friendly environment have turned the Southeast Asian nation into an appealing alternative to China. 

Intel Corp. and Samsung were early to spot its promise for manufacturing: Today they employ more than 182,000 workers combined at factories that assemble chipsets and smartphones. 

Makers of sneakers and video game consoles, among others, are looking to shift production to Vietnam in order to evade American tariffs on Chinese goods. 

Nintendo Co. and Sharp Co. are the most recent technology multinationals to announce plans to relocate operations there. 

On Aug. 1, Trump unveiled a new round—10% on $300 billion worth of Chinese imports—to take effect at the start of September.
Vietnam’s government granted investment licenses to more than 1,720 projects in the first six months of the year, up 26% from the same period last year. 

The country expects economic growth in 2019 of as much as 6.8%, among the fastest rates in the world. 

Yet its dependence on exports makes it particularly vulnerable to the surge in protectionism.

Cranes at a construction site at Bau Bang Industrial Park. 

Its annual trade surplus with the U.S. had already been growing at a rapid clip, reaching $40 billion in 2018. 

It totaled $25.3 billion in the first six months of this year, 39% higher than the same period last year, according to U.S. Census Bureau data. 

The Trump administration has seized on the worsening imbalance as evidence that Chinese companies are funneling made-in-China products through Vietnam to avoid tariffs, a practice known as transshipment. 

In July the U.S. slapped duties of more than 400% on steel imports from Vietnam.
Washington is dialing up the pressure on Hanoi in other ways. 

In May, Vietnam was added to the U.S. Treasury Department’s list of possible currency manipulators, a designation that could result in punitive measures. 

A month later, Trump, in an interview on Fox Business Network, described Vietnam as “almost the single worst abuser of everybody” when asked if he wanted to impose tariffs on the nation. 

“The United States has been clear with Vietnam that it has to take action to reduce the unsustainable trade deficit,” said U.S. Trade Representative Robert Lighthizer in a written communication with the Senate Finance Committee released on July 29.
The threat of new duties against Vietnamese products is real, says Sian Fenner, a Singapore-based economist at Oxford Economics, noting that the nation’s textile, computer, and seafood exports to the U.S. are especially at risk. 

The Americans’ increasingly hostile rhetoric has some companies rethinking their Vietnam strategy. Eclat Textile Co., a Taiwanese company that manufactures sportswear for Nike Inc. and Lululemon Athletica Inc., says it needs to shift work out of Vietnam to hedge against the possibility of the country getting caught in Trump’s tariff assault.
Unlike China’s response to tariffs, Vietnam’s reaction most likely would be conciliatory for one simple reason: It needs the U.S. much more than the U.S. needs Vietnam. 

The U.S. shipped less than $10 billion worth of goods to Vietnam last year. 

The country says it’s committed to buying more American goods, from Boeing Co. jets to energy products—possibly liquefied natural gas—to help narrow its trade surplus. 

To further placate Trump, Vietnamese leaders could offer to expand market access to its service sectors, such as telecommunications, finance, and insurance, Fenner says.
Prime Minister Nguyen Xuan Phuc, meanwhile, has directed officials to increase efforts to crack down on Chinese exporters that are rerouting products through the country. 

Vietnam is willing to engage in regular communications with the U.S. to “promptly resolve any issues that arise,” Nguyen Phuong Tra, Vietnam’s deputy foreign ministry spokeswoman, said in an emailed statement. 

The country’s leaders have been working to diversify its trade relationships, which in time will ease its dependence on the U.S. 

Vietnam has inked more than a dozen free-trade agreements in roughly the past two decades, including a just-signed deal with the European Union that will eliminate almost all customs duties.

Factories at Bau Bang.

Meanwhile, the industrial parks are besieged by companies looking to flee the U.S.’s China tariffs. 

At Bau Bang Industrial Park, north of Saigon, factory walls rise up from land where rows of rubber trees once stood. 

Housing for thousands of workers is being completed, as is a hospital. 

There’s a Taiwanese restaurant nearby. 

One of the enterprise zone’s operators gets visits from about 18 overseas suppliers a week. 

That’s triple the normal rate last year, according to Rose Chang, chief financial officer of DDK Group, which is involved in a joint venture with Warburg Pincus-backed Becamex IDC to operate a 200-acre section of the industrial park that will be home to Taiwanese companies making products such as headphones, baby strollers, and swimming pool and patio furniture.

Workers return to their residences inside Bau Bang Industrial Park.

Kinh Bac City Group, which operates similar parks across the country, has hosted visitors from 90 foreign companies this year that are exploring moves into one of its northern Vietnam industrial parks, says Phan Anh Dung, deputy general director. 

On a recent morning, he was taking a break after meeting with representatives of a Chinese company looking to set up operations in one of the group’s parks, about 45 kilometers (28 miles) from Hanoi. 

GoerTek Inc., an Apple Inc. supplier based in China, has begun construction on a $260 million factory expansion there. 

“I have never seen anything like this before,” Dung says. —

Trump Should Sanction China for Destabilizing South Korea

As Secretary of Defense James Mattis tours Asia to pledge support to our allies, the best form of reassurance would be action against China’s provocative moves in the region.
By GORDON G. CHANG

Secretary of Defense James Mattis is now ending his “Mission Reassurance,” the first foreign trip by a Trump administration official. 

He spent two days in Seoul and is finishing up in Tokyo.
The SecDef has been issuing strong words confirming America’s commitment to defend South Korea and Japan. 

That’s important. 

Now, however, it’s time for President Donald Trump to back up the reassurances with stiff economic sanctions on China for destabilizing North Asia.
Mattis’s staff, sounding pitch-perfect, characterized his inaugural foreign tour as a “listening trip.”
Yet the former Marine Corps four-star general was also there to speak. 

“I want there to be no misunderstanding during the transition in Washington that we stand firmly, 100 percent shoulder-to-shoulder with you and the Japanese people,” he said on Friday to Japanese Prime Minister Shinzo Abe.
“We stand with our peace-loving Republic of Korea ally to maintain stability on the peninsula and in the region,” Mattis said earlier in the day in Seoul. 

“America’s commitments to defending our allies and to upholding our extended deterrence guarantees remain ironclad: Any attack on the United States, or our allies, will be defeated, and any use of nuclear weapons would be met with a response that would be effective and overwhelming.”
What is neither effective nor overwhelming is America’s response to provocative Chinese actions directed against Seoul. 

For more than a year, Beijing has been trying to prevent South Korea from basing on its soil the Terminal High Altitude Area Defense system, designed to shoot down incoming missiles. 

From a location in the South, THAAD, as the Lockheed Martin-built system is called, can protect South Korea, Japan, Guam, and the United States. 

Beijing objects to deployment as it is worried that THAAD’s powerful radars can peer over the border into China and hit its missiles as well as North Korea’s.
Beijing has pulled out the stops in its campaign against Seoul, threatening to cut diplomatic relations and issuing media tirades. 

Moreover, it has used the Chinese economy as a club. 

It has, for instance, barred South Korea’s K-pop groups from performing in China, ended charter flights to the South, limited Chinese tourists going there, and banned the import of South Korean cosmetics.
And Beijing has gone after Lotte Group. 

The South Korean chaebol, the country’s fifth largest, is thinking of swapping land, a golf course, with the country’s Ministry of Defense so that the government can get a suitable parcel for the first THAAD battery.
There is talk of a boycott of Lotte Chinese outlets and “continuous sanctions.” 

Last November, the Chinese government also ordered an audit of an affiliate of Lotte and a fire-safety inspection of a Lotte store.
So far, the pressure on the conglomerate is working. 

On Friday, the board of directors of Lotte International, the group unit that owns the land in question, again deferred a decision to approve the deal. 

Perhaps significantly, the company did not announce a future board meeting.
In response, Seoul has stopped approving visas for Beijing’s Confucius Institutes in South Korea. That’s a brave step, but the South does not have the heft to significantly affect Beijing’s calculus on the matter.
The United States, however, does. 

The American market is critical to China, and closing it—or threatening to do so—would make Beijing rethink its intimidation of Seoul.
China is itself vulnerable to U.S. pressure. 

In 2015, China ran a trade surplus in goods and services of $336.2 billion. 

The surplus looks like it was slightly smaller last year, but it was nonetheless substantial. 

China could not sustain a sudden cut off of trade with the U.S.
Of course, America would be hurt as well, but the damage would be far smaller. 

The U.S. is not dependent on trade with China and its economy is far larger than China’s, thereby better able to withstand shocks. 

Last year, China’s gross domestic product, as reported by the official National Bureau of Statistics, was $10.83 trillion. 

America’s, according to the first estimate of the Bureau of Economic Analysis, was $18.86 trillion. 

In reality, the disparity is almost certainly larger due to Beijing’s overreporting.
Trump, while campaigning for the presidency, talked about a 45 percent tariff on Chinese goods to counteract the effect of Beijing’s increasingly predatory trade practices. 

Many objected to the cost of such a levy, but no cost is too high to get the earliest warning of a North Korean—or, for that matter, Chinese—launch of a nuclear weapon.
It’s outrageous that China has armed North Korea’s Kim regime and is now threatening “a small country”—Beijing’s demeaning term for South Korea—for trying to protect itself, but it’s understandable why it’s trying to get away with that. 

It is not explicable, however, why Washington allows the Chinese to get away with such intimidation.
It’s good for Mattis to issue reassurances to jittery American allies, but it would be even better for his boss to show real American commitment by imposing costs on China.
The best form of reassurance, after all, is action. 

Look out China and Mexico: How trade shapes Trump’s worldview

China’s large trade surplus is one reason it has been able to extend its influence across Asia and the rest of the world, in ways that have clear national security implications for the United States. 

By Simon Denyer 

President Donald Trump waves after taking the oath of office as his wife, Melania, and daughter Tiffany Trump stand beside him. 

By cozying up to Russia, and in his disdain for NATO, President Trump appears to have flipped decades of U.S. foreign policy thinking on its head. 

It has left many experts puzzled.
But for anyone trying to figure out Trump’s worldview, here’s a really interesting way of looking at things, courtesy of John Robb, who runs the Global Guerrillas blog and is an author and military analyst.
In a nutshell, Robb argues that trade — rather than national security — dominates Trump’s foreign policy thinking, inverting decades of U.S. practice. 

By implication, that makes any country running a large trade surplus with the United States a direct competitor.
If Robb is right, that’s very bad news for China, but it doesn’t make welcome reading for countries such as Mexico, Germany and Japan. 

Unless they can take steps to reduce their trade imbalances with the United States, they are unlikely to be fully trusted by a man who sees trade as a zero-sum game, and sees anyone “beating” the United States as a threat.
First, here’s the analysis, in Robb’s own words:
Since WW2, U.S. foreign policy has been completely dominated by national security policy. 

In fact, it’s hard to imagine a U.S. policy that doesn’t view the world through a militaristic, cold war lens. 

This means that ALL other aspects of foreign policy are conducted in support of (slaved to) national security policy. 

In particular, U.S. trade policy is configured to promote the economic growth of allied nations (originally to fight the Cold War) even if these trade relationships damage U.S. economic performance.
Trump inverts that policy relationship. 

In Trump’s post-Cold War world, U.S. foreign policy will be dominated by trade policy. 

Even national security policy will be subservient to trade policy. 

If trade policy is dominant, we’ll see China, Mexico and Germany become competitors. 

Russia, in contrast will become an ally since it doesn’t pose a trade threat.
So what does this mean in practice? 

China runs by far the largest trade surplus with the United States, some $319 billion in 2016. 

That’s nearly half of the U.S. trade deficit of $666 billion with just one country. 

In fact, China bought just $104 billion in U.S. goods last year, but exported some $423 billion worth of goods to the United States.
No surprise, then, that Trump took less than 10 seconds into the first presidential debate to slam China for devaluing its currency and stealing American jobs.
Trump, of course, has also taken issue with China over its island-building in the South China Sea, and he has publicly questioned American adherence to the one-China policy, the basis for diplomatic relations between the two countries that rules out independence for the island of Taiwan.
But the implication of the trade-first philosophy is that neither Taiwan nor the South China Sea really matters to Trump, except as ways to beat up on a country he sees as a direct economic threat.
Indeed, he has suggested as much, telling Fox News last month that he didn’t know why the United States had to be bound by the one-China policy “unless we make a deal with China having to do with other things, including trade.”
The other implication, of course, is that the deterioration in U.S.-China relations is probably here to stay, as long as Trump sticks around in the White House.
Beijing could generate goodwill by moving to open its markets more to foreign goods and investment, and Trump could declare victory if he convinces a manufacturer here and there to relocate to some jobs from Asia to the United States. 

But China’s trade surplus is unlikely to vanish overnight.
Here’s Robb again:
National security under this regime will be used to reinforce and grow positive trade relationships. For example, military tension with China creates the opportunity for sanctions that simulate the function of tariffs (allowing the U.S. to circumvent trade organizations and domestic resistance to tariffs). 

In a national security policy slaved to trade, any and all security guarantees extended to other nations will require a positive trade arrangement with the U.S. 

The U.S. simply won’t protect or extent security guarantees to any nation that has a non-beneficial economic relationship with the U.S. (i.e. runs a trade deficit).
Of course, trade and national security are arguably not either-or choices, but are often interlinked. Indeed, China’s large trade surplus is one reason it has been able to extend its influence across Asia and the rest of the world, in ways that have clear national security implications for the United States. 

Of course, this framework is only one way of looking at Trump’s foreign policy priorities, and it doesn’t explain his hawkish stance over Iran or concern over North Korea’s nuclear program.

But it does help account for his willingness to overturn decades of foreign policy consensus in Washington and undermine alliances that have formed the bedrock of American security since World War II.