Nobody expects Vietnam to replace China as the world’s major exporter, but the Southeast Asian country certainly appears to be taking some of China’s business with the United States.
In the first nine months of this year, U.S. imports from Vietnam jumped 34.8% year on year, accelerating from a 5.8% gain in all of 2018, according to a Thursday note by consultancy IHS Markit. In comparison, U.S. imports from mainland China shrank 13.4% year on year in the January-to-September period, the note said.
Tariffs were a major reason behind the decline in U.S. imports from China, said Michael Ryan, IHS Markit’s associate director of comparative industry service, who wrote the note.
He added that Vietnam’s fastest growing export categories to the U.S. are computers, telephone equipment and other machinery.
Those products were among the U.S.’s top imports from mainland China, Mongolia and Taiwan in 2018, according to the United States Trade Representative. That suggests that Vietnamese exports of those goods to the U.S. may have replaced the reduction in flows between China and America.
A mechanic works at factory in Hanoi, Vietnam.
Chau Doan | LightRocket | Getty Images
Challenges for Vietnam
Vietnam is often named as one of the largest beneficiary of the trade war because of an increase in its exports to the U.S. In addition, Southeast Asian country has seen a jump in foreign direct investments from manufacturers looking to circumvent elevated tariffs between the U.S. and China.
But the U.S. has not invested in Vietnam in a big way, noted Ryan. He pointed out that American investments into Vietnam only accounts for 2.7% of total FDI the Southeast Asian country received.
One reason is the U.S. doesn’t have a free trade agreement with Vietnam and the broader Association of Southeast Asian Nations, according to the IHS Markit report. But that’s just “one of many factors tempering the pace and magnitude of supply-chain diversification” into Vietnam, Ryan said.
Vietnam is also faced with a shortage in skilled labor, he said. The country’s talent pool has not been able to support the influx of inquiries, as many multinational companies are looking to relocate parts of their manufacturing supply chain outside of China, he explained.
“Simply, demand is outpacing the current ability to supply,” he said, adding that infrastructure in Vietnam is not yet up to standards for many international firms to establish shops.
Specifically, that means finding local business partners and fulfilling government requirements to obtain permits could be major obstacles for foreign companies, according to Ryan. In addition, Vietnamese roads were poorly built and ports are already congested, which add to the time needed to travel and move goods around, he said.
“Taken in combination, these factors are lengthening the delivery cycle to consumers and point to a drawn-out process of extricating operations from mainland China’s orbit,” said Ryan.
Source: Nov 21, 2019, CNBC