Vietnam Finds Itself Caught in Crossfire of U.S.-China Trade War

(Bloomberg) --

Trade wars are making it harder for countries to distinguish economic friend from foe. 

Take Vietnam, now the seventh-largest goods exporter to the U.S. The country has vaulted over long-time European suppliers such as the U.K., Ireland and France after starting the year in the 12th position.

Propelling the Southeast Asian nation’s rise has been a 34% surge in shipments to the U.S. through August, double the rate of increase in American products going in the other direction. Manufacturers are shifting production to places like Vietnam to avoid U.S. tariffs on Chinese imports — one of the more vivid examples of how trade wars are redirecting channels of goods and services.

But lately, the winners haven’t been able to celebrate for long. As exports surged, Vietnam’s trade surplus in goods with the U.S. swelled to $35.6 billion, up 38% from the same period in 2018, ranking just behind Germany. The Trump administration sees bilateral deficits like these as imbalances in need of a fairness check.

So it’s no surprise what happened to Vietnam:

• In May, the U.S. Treasury Department added the country to its watch list for exchange-rate manipulation.
• In June, President Donald Trump described Vietnam as “almost the single worst abuser of everybody” when it came to international trade.
• In July, the U.S. slapped tariffs of more than 400% on steel imports from Vietnam, saying they originated in Taiwan and South Korea.

Add it all up, and Vietnam makes a good case study in Bloomberg’s just-released New Economy Drivers and Disrupters Report. The country with an economy the size of Louisiana’s ranks toward the bottom of the disrupters side of the index, indicating heightened exposure to risks as nations use tariffs and other tools of trade warfare. Vietnam will also face strains on infrastructure such as ports that will require both public and foreign investment.

The lesson for countries like Vietnam? Stay diversified with your export partners, because you never know when one of your friends might turn on you.

Charting the Trade War

Boris Johnson’s failure to lead Britain out of the EU on Oct. 31 as he promised makes the country more likely to face an even bigger crunch moment next year. The successive Brexit delays mean the U.K. will have very little time to negotiate a free-trade agreement with the EU before the end of 2020, when the planned transition period smoothing Britain’s withdrawal is due to end. Previous EU commercial accords have taken several years to reach. 

Today’s Must Reads

• Financial decoupling | Senator Marco Rubio plans legislation to block U.S. government pensions from investing in Chinese stocks after an oversight panel delayed a decision on the issue.
• Less trade | U.S. exports and imports of goods both slumped in September to the weakest levels in more than a year, the latest sign Trump’s tariffs are weighing on the economy.
• USMCA leverage | U.S. companies and trade groups that want lawmakers to approve a new trade pact with Mexico and Canada are making the unusual bet that the impeachment drama could actually help get the deal through Congress.
• Staying alive | Chinese tech companies are scrambling to survive Trump’s blacklist and other measures aimed at containing the advance of the U.S.’s biggest economic rival.
• ‘Backdoor’ to canola | China has found a way to get the Canadian vegetable oil it needs, after shunning direct imports from the country earlier this year.

Economic Analysis

• Euro-area worry | Leading indicators are consistent with growth remaining slow at least until early 2020, but don’t signal a deep downturn.
• 2020 trade outlook | Three scenarios: truce without respite (our base case); war (damaging but not impossible); and peace (unlikely given the scale of the problems).

Coming Up

• Nov. 1: South Korea trade balance

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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