How Can Vietnam Benefit from the US-China Trade War: Essay

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How Can Vietnam Benefit from the US-China Trade War: Essay

The trade war between the US and China has been attracting global citizens’ attention since July 2018. Until now, Washington’s tariffs on Chinese merchandises have reached US$550 billion. Beijing struck back with tariffs of US$185 billion on US merchandises. Therefore, the trade war between the US and China is affecting the world.

Global

The US-China trade war impacts the world in general and ASEAN members more specifically. Its effects can be either positive or negative, and nations must try their best to get the most out of the trade war.

The trade war can benefit the ASEAN association economically. Companies are shifting factories out of China to avoid the tariffs that Washington applied to Chinese products. Thus, companies are finding potential locations to build a new manufacturing chain and Southeast Asia is receiving attention from US multinationals. According to the ASEAN Post, the trade war will have large impacts on the ASEAN economy (Thomas, 2019). The ASEAN economy will improve as each of its members’ GDP will grow rapidly due to the rising international investment (Thomas, 2019). For example, Malaysia’s GDP will rise at least 1.8 percent as a result of the trade war (Thomas, 2019). Indonesia is receiving attention from US firms as they’re exploring the country (Thomas, 2019). Thus, ASEAN members can gain millions of dollars due to the trade war. Together, from the ASEAN association perspective, the trade war can boost the ASEAN economy.

However, the US-China trade war can cause conflict within the ASEAN. Southeast Asian countries will reduce their tax rate on foreign companies to attract businesses to move out of China. After moving out, businesses will first look for places with a low foreign tax rate that will benefit them the most. Therefore, nations will try to decrease their tax rate to attract as many oversea multinationals as possible. According to Forbes, one of the main components for US firms to choose China over other nations around the globe is the tax rate (Rapoza, 2019). Even though Brazil or Mexico is closer to the US, and India has a more significant labour force compared to China, Chinese cooperate tax level is 25 percent for foreign firms while the type of tax from the aforementioned nations is at least five percent higher (Rapoza, 2019). This proves that one component for firms to allocate their factories is the tax rate. Many ASEAN members will work on how to lower their tax levels to attract companies and still keep the economy growing. This might lead to hidden competition among countries to have the lowest tax rate. If all ASEAN members concentrate on reducing the cooperative tax rate, then conflicts can occur within the ASEAN association. Thus, it can affect the relationship between ASEAN members.

The trade war between the world’s two most powerful nations can change the economic status of various countries in Asia. It can weaken the connection between these nations.

National

News and articles mention that Vietnam is advantageous from the trade war. The trade war brings numerous advantages for Vietnam, but Vietnam has to face difficult challenges to achieve that.

After the trade war began, businesses were trying their best to avoid tariffs, and there are various methods to do that. One of them was to change the label from ‘Made in China’ to ‘Made in Vietnam’ to avoid Washington tax tariffs. It is reported that some Chinese goods are being transported to Vietnam to get the label ‘Made in Vietnam’ and are then traded to the US to evade increasing tax rates on Chinese merchandises (Bằng, 2019). These actions of Chinese corporations are being noticed by both the US and the Vietnamese government (Bằng, 2019). Responding immediately to the case, Washington warned Vietnam saying that they will put tariffs on Vietnamese merchandises in order to tackle the issue (Press, 2019). Similarly, Hanoi is also trying its best to stop corporations from breaking the law (Press, 2019). To be specific, the Vietnamese Ministry of Industry and Trade is opening an investigation on the illegal Chinese goods transportation line to Vietnam that ships these goods to the US later on (‘Vietnam: China Companies Using Fake ‘Made in Vietnam’ Labels’, 2019). Recently, the Ministry of Finance and the General Department of Customs received a written request paper from the Vietnamese Ministry of Industry and Trade asking for tight control on specific Chinese products that are being investigated by the US Customs and Border Protection (Bằng, 2019). These products were reported with a high increased export rate in early 2019 compared to same time frame the year before (Bằng, 2019). The trade war is pushing the Vietnamese government to protect its country as Chinese factories are attempting to evade the Washington tariffs. The obstacles the trade war is producing are in turn giving Vietnam a chance to protect and therefore prove itself to the world.

Since the trade war began, US businesses are transferring their international investment from China to Vietnam to evade Washington tax tariffs. The same action is being taken by the Chinese factories that export goods to America (Lynh, 2019). As firms come into Vietnam, they’ll bring advanced technology with them (Lynh, 2019). These high-tech methods will enhance Vietnam’s manufacturing chain and technology development. The Vietnamese market will be promoted globally and therefore attract more foreign corporations from across the globe. A report done by the US Department of Commerce stated that the merchandising rate between Vietnam and the US in January, February and March of 2019 had extended 40.3 percent compared to the previous year which means Vietnam has the highest rate among the US’s 12 largest exporters (Lynh, 2019). The article mentioned that if Vietnam could maintain this stable growth of their export rate for the next three quarters of 2019, Vietnam can become the 7th largest US exporters leaving France, England, Italy and India behind (Lynh, 2019). The value of exported products is estimated to reach US$69 billion (Lynh, 2019). If Vietnam can seize the chance provided, Vietnam’s economy will improve immensely. There is a tendency among US firms to move mechanized places out of China to more sustainable nations. The intense relationship between the US and China generates more investment from US corporations and is a push for this shift to occur faster (Hoài, 2018). As the door for Chinese merchandises to the US gradually closes with an import tax rate of 25 percent, it’s possible for Vietnam to get a direct profit from the US market by associate with the same type of goods. Vietnam can make use of the trade war and consequently, Vietnam’s economy will be boosted.

Vietnam’s economic status will raise as an implication of the US-China trade war. In the journey of reaching this achievement, Vietnam will deal with difficulties that might cause hardships for itself.

Solution

The advantages that Vietnam will receive are undeniable and Vietnam must take action now. Vietnam needs to advance the quality of its workforce and reduce its tax rate for foreign firms.

The US-China trade war allows opportunities for Vietnam to be known worldwide. In the long-term, Vietnam needs to improve labor skills to take advantage of the opportunities provided by the US-China Trade war. According to BBC, Vietnam has a productive labor force and a young labor structure. Every year, more than one million Vietnamese join the labor market. However, the majority of the workforce don’t go through training for qualifications. According to ManpowerGroup (a recruitment firm), only 12 percent of the Vietnamese workforce (which is 57.5 million people) are highly skilled (Thương chiến Mỹ-Trung, 2019). As companies shift to Vietnam due to the trade war, the demand for highly skilled labor has increased rapidly, making the shortage of technical workers even more intense. If Vietnam doesn’t take actions in order to aim for a skillful labor force, foreign businesses cannot choose Vietnam as their next location after moving out of China. Enhancing workforce quality not only benefits Vietnam during the trade war but also after it as Vietnamese laborers are skilled enough to retain clients from overseas.

As a result of the trade war and corporations shifting out of China, there are various suitable countries for these companies to choose from. To make Vietnam stand out, the Vietnamese government should lower tax rates to entice foreign factories to place their factories in Vietnam. ASEAN countries are competing on tax rate to have as many businesses as possible to boost the economic status of the nation. Therefore, if Vietnam can take action immediately, the probability of businesses shifting to Vietnam is exceptionally high. US multinational companies are choosing chains of Chinese factories not only because of the quality but also the tax rate (Rapoza, 2019). After Washington puts tariffs of 25 percent on Chinese goods, less than 10 percent of American multinationals want to relocate their mechanizing chain (Rapoza, 2019). Therefore, Vietnam must have a reasonable tax rate for oversea firms to move their factories by decreasing the tax rate.

Organizing more training among the human resources will be the continuing plan for Vietnam to utilize chances provided the US-China trade war and the international market. The government can reconsider the export tax rate to draw attention globally.

Comparison of Causes and Consequences

The cause and consequence of the Vietnam economy being boosted are most applicable to the topic. In reality, the export rate of Vietnam goods to the US in 2019 increased nearly by half compared to 2018 which help the economy grow (Lynh, 2019). Even though hidden conflicts between ASEAN members are very likely to happen, there is no direct evidence to prove this claim.

Personal, Global and Local Analysis of Cause and Consequences

Before research, I believed that the US-China trade war wouldn’t affect any country besides them. I thought that the US-China trade war would only affect its citizens as the Chinese and US exports prices will be higher for the other. After researching, I understand that other republics can be affected. For example, Vietnam can be affected as Chinese people are trying to break the law and transmit their products to Vietnam and then export away. There is also a possibility of Vietnam getting the same tariffs as China. The researching process helped me to understand how the trade war affects the world.

Conclusion

The results of the US-China trade war on the world are diverse. Both enhancing workforce quality and declining tax rate are must-take actions for Vietnam. Improving labor force is important for Vietnam if the republic wants to attract businesses. Decreasing tax rates can retain factories to stay in Vietnam. Thus, the authority should deploy both solutions to stay strong in the long run.

Bibliography

A Quick Guide to the US-China Trade War. (2019, September 2). Retrieved from BBC: https://www.bbc.com/news/business-45899310
Bằng, L. (2019, June 28). Tiếp tay hàng Trung Quốc gian lận xuất xứ vào Mỹ: Ngăn chặn ngay. Retrieved from VietnamNet: https://vietnamnet.vn/vn/kinh-doanh/dau-tu/ngan-chan-nan-tiep-tay-hang-trung-quoc-gian-lan-xuat-xu-vao-my-545490.html
Hoài, N. (2018, July 7). Chiến tranh thương mại Mỹ – Trung ảnh hưởng ra sao tới kinh tế Việt Nam. Retrieved from VnExpress: https://vnexpress.net/kinh-doanh/chien-tranh-thuong-mai-my-trung-anh-huong-ra-sao-toi-kinh-te-viet-nam-3774035.html
Lynh, K. (2019, June 7). Chuyên gia cảnh báo tác động tiêu cực của thương chiến Mỹ – Trung với kinh tế Việt Nam. Retrieved from VnExpress: https://vnexpress.net/the-gioi/chuyen-gia-canh-bao-tac-dong-tieu-cuc-cua-thuong-chien-my-trung-voi-kinh-te-viet-nam-3931077.html
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Rapoza, K. (2019, September 3). Why American Companies Choose China Over Everyone Else. Retrieved from Forbes: https://www.forbes.com/sites/kenrapoza/2019/09/03/why-american-companies-choose-china-over-everyone-else/#5e756b3171de
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