The impacts of trade war are more negative than positive

Mr. Le Quoc Phuong, former Deputy Director of the Industry and Trade Information Center (Ministry of Industry and Trade)

What do you think about the impact of the US-China trade war on Vietnam?

Vietnam is a country with a great, open economy. The US and China are the two countries with the largest import-export turnovers with Vietnam. About the impact of the trade war on Vietnam’s economy, in my opinion, it has positive impacts, but mainly in the form of opportunities, meanwhile there are more negative impacts. Thus, Vietnam must make great efforts to fully take the opportunities.

On the positive side, the US imposed high tariffs on Chinese goods, including those of foreign investors in China. Thus, these investors may move their bases from China to other countries, including Vietnam. Meanwhile, Vietnam is actively improving its business environment with cheap labor, and is considered as the leading destination for foreign investment. Besides, in the context of Chinese goods not exported to the US, this will lead to a shortage of goods. If Vietnam can take the opportunity, it can export more into the US market. However, it should be noted that goods exported to the US must meet the high standards of this market.

Another positive impact was the rising price of the US dollar as the FED increased interest rates and the trade war caused the Yuan’s drop. The increase of the USD will be beneficial for Vietnam’s exports in the short term, because the Vietnam Dong is mainly following the USD price. In addition, trade war makes China unable to export to the US. Thus, Chinese goods may flood into Vietnam, creating a pressure on Vietnam to improve its competitiveness and fight against the pressure of Chinese goods.

What are the negative impacts, Sir!

As I mentioned above, there are many negative impacts. Firstly, Chinese goods that are unable to be exported to the US will be exported to other countries with lower prices, especially flooding into Vietnam, firstly in both official and unofficial ways. This is the biggest challenge. Besides, the global trade depression due to the trade war will confuse investors for investing into foreign countries or expanding investment in foreign countries. In the context of difficult exports, the trend of global FDI will be reduced over a certain time, and the delay in investment will make the international investment decrease in general, leading to a fall of investment into Vietnam. Another negative impact is the exchange rate, because the increase of USD will make the exports rise in the short term, but in turn, the import activities will be affected heavily, especially since Vietnam is importing many raw materials, machinery, equipment, fertilizers, seeds… from China. The increase of USD will create a burden on the public debt that will make public debt increase highly, and at the same time, the domestic currency’s decrease will create pressure on inflation.

Thank you, Sir!