Peer reviewed analysis from world leading experts

Can Vietnam weather Trump’s trade storm?

Reading Time: 5 mins
US President Donald Trump gestures as he poses with his Vietnamese counterpart Tran Dai Quang during a welcoming ceremony at the Presidential Palace in Hanoi, Vietnam, 12 November 2017 (Photo: Reuters/Hoang Dinh Nam).

In Brief

Vietnam has become one of the most open economies in the world. Any development resulting in a shrinkage in world trade and growth such as the US–China trade war will inevitably affect its economy.  


  • A
  • A
  • A


  • A
  • A
  • A

The current trade tensions are restricted to US–China bilateral trade. In the short term, this could lead to more foreign direct investment (FDI) flowing to Vietnam as multi-national companies diversify their supply chains away from China. Instead of producing parts and components of electronic goods in Southeast Asian countries and doing the final assembly in China, multi-national companies may move their entire operations to neighbouring countries like Vietnam.

To capitalise on this, Vietnam would have to work hard to upgrade its infrastructure, human capital and administrative capabilities — challenges that could prove insurmountable in the short-run. Even if Vietnam can step up in the medium-term, it may hit barriers as there is no guarantee that the current US trade restrictions will not spread to other countries, including Vietnam.

Indeed, there is already a long history of trade tension between Vietnam and the United States. Ever since the normalisation of US–Vietnam relations in 2001, the so-called ‘catfish war’ has been raging. Catfish imports from Vietnam enjoy a substantial cost advantage and threaten the interests of some 3000 catfish farmers in Alabama. These American fish farmers initially lobbied the US government to insist that Vietnamese catfish are different from American catfish and had to be labelled differently.

When that failed to slow the import of Vietnamese catfish, US authorities claimed that Vietnamese fish farmers were subsidised by their government and brought an anti-dumping case against them, resulting initially in duties of up to 63 per cent. However, these duties are subject to case-by-case reviews, and have been reduced substantially since 2017.

More recently, the US Department of Agriculture imposed extra health and safety checks on Vietnamese catfish imports, in addition to normal checks by the US Food and Drugs Administration. Vietnam has taken this matter to the World Trade Organization and claims that the extra inspections constitute non-tariff trade barriers.

Given the current political climate in the United States, it may only be a matter of time before more obvious trade barriers such as tariffs are imposed. Unlike barriers such as anti-dumping or restrictions on health and sanitary grounds, tariffs are not subject to reviews.

On the Chinese side, Vietnam stands out as the only ASEAN country that runs a large and persistent trade deficit with China. Until the past two years, state-owned enterprise reform has taken a back seat in Vietnam. As a result, many important service and upstream industries (including textiles, cement and steel) are still largely state-owned and protected from competition. They are inefficient and unable to meet the market-oriented demands of highly competitive downstream industries such as garments and footwear, and to some extent, construction.

These industries instead rely on materials imported from neighbouring China. For instance, the construction boom of 2006–07 caused a sharp increase in iron and steel imports from China. Likewise, the rapid growth of garment exports from Vietnam since 2000 has driven rapid growth of fibre and cloth imports from China.

The recent devaluation of the renminbi by 8 per cent has improved Chinese exporters’ competitiveness and lowered costs in the Vietnamese industries that rely on Chinese imports. But Vietnam’s capacity to follow suit and improve its own international competitiveness by devaluing its currency is limited as this would increase its debt denominated in US dollars.

Vietnam’s public debt is already approaching the 65 per cent of GDP ceiling set by Vietnam’s National Assembly, and a large proportion of that debt (around 45 per cent) is denominated in US dollars. A large depreciation of the Vietnamese dong would significantly increase the size of Vietnam’s debt denominated in US dollars. So it is not surprising that Vietnam’s Prime Minister recently stated that the Vietnamese dong will not be devalued by more than 2 per cent this year.

As the current trade tensions continue to evolve, Vietnam cannot afford to be complacent and rely on achieving its annual growth target of 6.5 to 7 per cent simply through FDI and exports. Indeed,  the so-called ‘export-oriented strategy’ followed by Vietnam and many other Asian economies is successful not only because it boosts domestic growth by increasing demand for the country’s products, but also because it enhances efficient allocation of domestic resources by opening the country to international competition. Yet with the prospect of further disruptions to the rules-based trading system, Vietnam mustn’t forget that there are other ways to improve resource allocation and drive growth.

It is even more important now that the Vietnamese leadership continues to pursue structural reform of its state-owned enterprises and financial sector, and to build strong, credible public institutions. These domestic reforms will help to strengthen competition in the domestic economy and encourage the further development of the domestic private sector.

Vietnam has a lot of work to do if it wants to maintain its rapid growth trajectory in this uncertain and potentially unfavourable global environment.

Suiwah Leung is an Honorary Associate Professor of Economics at the Crawford School of Public Policy, The Australian National University.

Comments are closed.

Support Quality Analysis

The East Asia Forum office is based in Australia and EAF acknowledges the First Peoples of this land — in Canberra the Ngunnawal and Ngambri people — and recognises their continuous connection to culture, community and Country.

Article printed from East Asia Forum (

Copyright ©2024 East Asia Forum. All rights reserved.