Vietnam is increasingly caught up in Donald Trump’s protectionist trade policies. The culprit is its trade surplus with the US — on track to reach $50bn this year. In June the US president berated the country for treating it “even worse” than China on trade, and imposed huge tariffs on some of its steel imports. Vietnam responded, like China and the EU before it, by committing to increased purchases of US goods. This commitment was reiterated again recently while Hanoi also joined the US in banning Huawei from supplying 5G telecoms equipment.

Yet unlike these vast $13-14tn economies Vietnam is a $240bn economy with per capita income just two-fifths of that in China. Subjecting Vietnam to the same arbitrary US trade policies as larger, richer economies with more capacity to respond must be avoided.

Export growth across Asia has collapsed this year amid the ongoing US-China trade spat and weaker global growth. Vietnam is an exception. Exports have continued to increase, albeit more slowly than last year. Components such as phones, computers and electronics, have all recorded strong growth and exports to the US, long Vietnam’s top trade partner, have outperformed. Yet despite the steady rise in Vietnam’s export capacity over the past decade it still accounts for less than 3 per cent of US imports, far below the 17.5 per cent from China.

Worries over relabelling of goods to avoid tariffs is a legitimate concern which Vietnam has pledged to address. It is also the stated reason for the steel tariffs of up to 456 per cent announced in July. The US believes steel is being rerouted through Vietnam to avoid anti-dumping measures imposed on Taiwanese and Korean steel. Cambodia has also come under fire, with the US fining several companies for relabelling goods to avoid Chinese tariffs.

Punishing Vietnam for unfair trade practices is ill-judged. Firstly, Vietnam’s ability to circumvent US tariffs on Chinese goods is limited by the vast difference in the scale of exports. US imports from China dropped by around 12 per cent so far this year but remain seven times those from Vietnam. There is also disagreement over the extent to which the goods imported are subject to tariffs. An often cited example is a sharp increase in Vietnam’s exports of mobile phones to the US. Mobile phones are only subject to US tariffs from December 15. Secondly, the recent jump in China’s exports to Vietnam also runs into a scale issue. China is increasingly exporting computers and electrical components to Vietnam, but by much more than Vietnam’s exports to the US have increased.

Vietnam’s ongoing economic development is vital context. The country has been one of the fastest-growing economies in Asia during the past decade. Since joining the WTO in 2007 foreign investment has surged, particularly in the export sector, infrastructure has improved and labour is in ample supply. Vietnam has also signed a number of trade deals to boost its export-led growth model. Internal dynamics in China also matter. Rising wages have eroded competitiveness and multinationals are increasingly considering adding capacity elsewhere.

Vietnam is unlikely to be the last country targeted. US tariffs against Japan in the 1980s and its use of more than 2,000 trade remedies to counter perceived unfair trade practices over the past 45 years point to a penchant for protectionism. Mr Trump appears to be working his way down the list of the US’s largest bilateral trade deficits where Vietnam ranks fifth. India, in eighth place, lost its preferential access to the US market in June. Malaysia could be the next target.

Source: Financial Times