Filenews 21 November 2024 - by Cyrus Farivar
President-elect Donald Trump says his plan to impose higher tariffs on imported goods will shrink the federal deficit, lower food prices and create more U.S. jobs. During the election campaign, the Republican candidate promised to "relocate entire industries" to the US. "You're going to see a mass exodus of manufacturing from China to Pennsylvania, from Korea to North Carolina, from Germany to Georgia," he said in September.
Such an "exit," if it happens, is unlikely to happen on the scale and speed Trump wants. Instead, prepare to see another state benefiting from Trump's policies: Vietnam.
"What used to be made in China will now be made in Vietnam," Jason Miller, a professor of supply chain management at Michigan State University, told Forbes. "This production will not return to the U.S."
During the previous Trump administration, major foreign companies, such as Apple, Foxconn and Intel, began turning to Vietnam as a way to diversify their production portfolio. Just two months ago, SpaceX announced a $1.5 billion investment. dollars in Vietnam. Even the Trump Organization is investing in the country: the $1.5 billion luxury real estate deal is recent.
Now, the Southeast Asian nation can benefit even more from the new Trump administration's anti-China sentiments — especially if it moves quickly to rationalize regulation to simplify procedures for bringing new businesses to Vietnam.
Vietnam has some advantages over other regional competitors such as India. First, as a one-party authoritarian state, Vietnam can immediately enact new policies favorable to business. In addition, the country is in a good geographical position: it has three of the 50 largest ports in the world and is located next to China, making trade and transport between the two countries easier. Vietnam has a free trade agreement with the European Union – the second regional country with such an agreement is Singapore. (India is negotiating a similar deal that would normalize imports and exports with the EU.)
Vietnam is also rapidly improving the infrastructure necessary to support large projects. A recent decree allows companies to buy green energy from solar power producers instead of turning to the state-owned energy company. The move, which makes it easier for companies to meet their climate goals, was welcomed by Apple, Samsung, the largest foreign investor in Vietnam, and the U.S. embassy in Hanoi.
In recent months, Trump has repeatedly said he wants to promote U.S. manufacturing and make it more expensive to import foreign goods. It has targeted Mexico and China, announcing that it will impose tariffs of 25% to 100% on products produced by its southern U.S. neighbour and a 60% tariff on Chinese goods. Any imported product - including from Vietnam - should be subject to a 20% duty.
"Vietnam could follow a successful or even extremely successful path, depending on how much this wave of foreign direct investment eases," Ahn Ngoc Tran, a professor at Indiana University and a former adviser to the Vietnamese prime minister, told Forbes.
Tran said he is currently preparing a memo for Hanoi on how his homeland can benefit from strict new trade rules, as Vietnam is betting that a huge influx of foreign capital will help it transform into a high-income developed country by 2045. At the top of Tran's list are multinational companies that will bring their own supplier ecosystem to the Southeast Asian country and higher-value products.
"Vietnam should prioritize companies that will bring other companies into the country," he explained. "If you bring Apple, a lot of suppliers will want to be close to it – we need companies that will enable Vietnam to move into the high-tech sector. Instead of producing footwear and textiles, Vietnam should target biotechnology, artificial intelligence and semiconductors."
This is a shift from the roots of Vietnamese industry. In the 90s the country started making shoes and clothes for foreign multinationals such as Nike and Adidas. In the early 2000s, major electronics companies began relocating from China to Vietnam to take advantage of lower labor costs and favorable trade deals. Samsung opened its first factory in Vietnam in 2008, followed by LG and Intel. These multibillion-dollar deals prompted the smaller suppliers of multinational companies to establish themselves in Vietnam as well.
Thus, Vietnam's trade deficit with the United States—the difference between its exports and imports—has tripled since 2004. According to the U.S. Census Bureau, Vietnam has the fourth-largest trade deficit with the U.S., behind China, Mexico and the European Union.
In 2018, when the first Trump administration imposed tariffs on certain goods made in China, such as solar panels and washing machines, businesses were not tempted to repatriate. Instead, they moved production infrastructure to Vietnam, Thailand, Malaysia and India. But Vietnam's GDP grew at a faster pace than its neighbours — with the exception of China — at 6.2 percent year-on-year.
In May 2020, Apple moved production of AirPods from China to Vietnam. Months later, Foxconn reportedly relocated some production to assemble iPads and MacBooks from China to Vietnam at Apple's request. (Apple has also moved some of its production to India.)
Statistics from the United States International Trade Commission show that between2018 and 2019, imports of electronics from Vietnam nearly doubled. A 2023 World Bank report found that in 2017-2022, imports of Chinese goods into the U.S., from sewing machines to laser printers, declined, with Vietnamese products gaining this share of the U.S. market.
Vietnam had seized the opportunity. It is "one of the countries that managed to take advantage of the tariffs that the U.S. imposed on China, at least in the early years of the trade war," Pablo Fajgelbaum, an economics professor at the University of California, Los Angeles, told Forbes.
This increased the country's entire export economy, as factories moved to Vietnam, manufacturing products for American consumers. "Vietnam has increased its exports to the rest of the world as well," Fajgelbaum added. Hanoi expects that if there continues to be a gap in U.S. tariffs between Vietnam and China, companies will continue to move their factories there.
In late October, Maersk announced it was opening its first customs warehouse in northern Vietnam, in Haiphong Port: a facility where goods can be stored before duties are paid. Amazon Vietnam will be Maersk's first customer. Lego, the Danish maker of virtual games, announced in November that the construction of its new factory worth $1 billion would be a major step forward. The dollar at Binh Duong is almost completed and operational in early 2025.
Vietnam has cajoled Trump himself. In early October, Eric Trump, son of the president-elect and executive vice president of the Trump Organization, announced the development of a $1.5 billion project. It will include five-star hotels and golf courses in a province outside Hanoi.
"Vietnam has tremendous potential for luxury resorts and leisure activities, and we are excited to work with this amazing family to redefine the value of luxury in the region," Trump said in a statement about his Vietnam partners.
Domestic investors also see great opportunities. Michael Kokalari, chief economist at Vina Capital, one of Vietnam's largest investment firms, with assets worth $3.7 billion. He told Forbes that these trends will create demand for logistics and clean energy companies and help grow the middle class in Vietnam. "Much of our investment activities at VinaCapital focus on companies that either directly or indirectly benefit from the rising middle class."
Just as companies once moved production to China, Trump's tariffs will only accelerate the shift to Vietnam. Be that as it may, Vietnam is already charting its course.
Performance – editing: Michalis Papantonopoulos
