Vietnam’s position in the new world order

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Báo Đầu Tư English - 1 month(s) ago 5 readings

Senior economist Nguyen Mai has a look at the international standing before and after US President Donald Trump took office and shares his views on what Vietnam should do to capitalise on the new situation.

The problems that plagued the world economy in 2016 will continue this year, coupled with several new issues that have drawn the world’s attention - nationalism and trade protectionism.

New US President Donald Trump issued a decree to withdraw from the Trans-Pacific Partnership Agreement (TPP). There were also decrees which required Canada and Mexico to renegotiate the North American Free Trade Agreement (NAFTA), applied unilateral measures on trade protection to individual nations, and urged US firms to move offshore factories back to the US. Behind these decrees lies the emergence of a new trend: American nationalism.

Trump jumpstarted negotiations with the UK - a past member of the European Union (EU) - after its exit from the union. Following the emergence of right-wing leaders in France and other European countries, the rise in nationalism, and its resulting protectionist policies, is expected to shadow globalisation and international economic integration efforts.

Analyst Gideon Rachman wrote in an early 2017 Financial Times issue that the incompatibility between American and Chinese nationalism in the Pacific seemingly has increased since Trump won the election.

Rachman said that before Trump espoused the slogan “Make America great again”, Chinese President Xi Jinping aimed to “restore the Chinese nation” and Russian President Vladimir Putin wanted to make Russia the world superpower it once was during the time of the former Soviet Union.

With Donald Trump’s election and protectionist sentiment on the rise, Vietnam must prepare itself for multiple scenarios of international trade, Photo: Le Toan

US stance towards China

Since the early 2000s, US-China relations have heavily impacted the world’s political and economic environment.

After taking office in 2001, former US President George W. Bush regarded China as a “strategic rival”, and accused China of creating tensions in Asia.

The terrorist attacks in the US on September 11, 2001 marked a watershed in the two countries’ relations, as China sided with the US in their fight against terrorism. Late in his second term, Bush attended the opening ceremony and other events at the Beijing Olympics in 2008.

Since his first term in 2009, former US President Barack Obama maintained relatively friendly relations with China. In November 2009, he and former Chinese President Hu Jintao held the US-China Strategic and Economic Dialogue to expand bilateral economic co-operation, initiated in 2006 under Bush’s reign.

Beginning in 2012, Obama began pivoting towards Asia, focusing on the Asia-Pacific region, while Xi Jinping announced plans to strengthen China’s influence in the international arena.

In the late years of the Obama administration, confrontation escalated, despite the two countries co-operating on climate change, ratifying the Paris Agreement in 2016.

Over the past few years, China has rapidly increased its export value. In 2015, China’s export value represented 14 per cent of the world market, surpassing the US (9 per cent), Germany (8 per cent), and Japan (3.8 per cent). With import surpluses in the US touching $261 billion, China accounted for 70 per cent of total American import surplus in 2015.

Bilateral trade relations between China and the US have drawn the attention of a few US presidents over the years. However, no US president has been as stern as Trump, who, among other things, threatened to impose high tariffs on goods imported from China.

International experts predict that under Trump, relations between China and the US will become increasingly strained, and an unprecedented trade war between these two leading economies could break out.

US stance towards the EU

Trump publicly supported the UK’s exit from the EU, and his views regarding the EU and the North Atlantic Treaty Organization (NATO) were commented on by the New York Times: “EU leaders are struggling to ‘decipher’ Donald Trump, who seemingly each day picks a new fight against a new nation, whether friend or foe.”

Recently, an EU summit in Malta was convened where European Commission Chairman Donald Tusk wrote a letter to EU leaders saying that “changes in Washington have brought difficulties to the EU. The US’ new administration is challenging their external policies that have been faring well for the past 70 years.”

French President Francois Hollande insisted that Europe must demonstrate unity before Washington, while German Chancellor Angela Merkel said nations must stand on their feet during Trump’s term.

For US allies in Europe such as Germany, France, and the UK, their relations with the US during Trump’s administration are facing new challenges. For instance with Germany, leading American news channel CNBC assumed that Germany’s high trade surplus of nearly $270 billion last year may be a source of tensions with the US. Meanwhile Germany, which chairs the G-20 Group in 2017, is forecast to try its utmost to protect trade liberalisation under the slogan “Shaping an interconnected world”.

Vietnam’s approach

When the leader of the world’s number-one economy vows to pursue nationalism despite facing opposition from politicians, scientists, leading business groups, and millions of Americans, this trend may spread to other regions in the world, and is accompanied by trade protectionism, which goes against globalisation and international integration.

This has brought about a series of new issues for Vietnam, particularly regarding the process of pursuing investment and trade liberalisation and deepening regional and international integration.

Economic relations, particularly trade relations, with the US are very important to Vietnam. Although there have not been any signs directly impacting the two countries’ trade relations, we should remember that Trump once floated the idea of imposing a 20 per cent tax rate on commodities exported to the US.

If this happens, it could have a major impact on Vietnam’s export value in the US market, which made up more than 20 per cent of the country’s total export value in 2016.

According to the General Department of Customs, Vietnam’s total export value to the US touched $3 billion in January 2017, down more than $600 million compared to December 2016 and $10 million year-on-year. The monthly export value to the US market averaged $3.3 billion last year.

It is too soon to draw any conclusions about the situation, but it may be a difficult year for Vietnam-US relations when Trump’s new policies come into force.

Thus, how can Vietnamese companies currently having relations with US partners prepare for the new situation?

The government and its ministries, particularly the Ministry of Industry and Trade, need to keep tabs on the situation, make timely forecasts, and prepare suitable remedies to support businesses and ensure national interests. In the meantime, they must adapt to developing worldwide trends.

The US withdrew from TPP, but several countries, including Japan and Australia, are still pursuing the agreement and will convene a meeting with representatives of the 11 remaining countries. Vietnam needs to present initiatives on its continued implementation of TPP without the US, and make careful preparations to commence negotiations to finalise the agreement.

TPP will bring benefits to all stakeholders, particularly local businesses and the Vietnamese economy.

When announcing US withdrawal from TPP, Trump unveiled the possibility of forming bilateral free trade agreements (FTAs) with individual nations. That needs to be further studied, especially in the context of the two countries’ fast-growing trade thanks to the Vietnam-US Bilateral Trade Agreement (BTA) inked in December 2001.

Forming a new Vietnam-US FTA to supersede the existing BTA may foster relations with the US and allow the two countries to scale up mutual trade. It could also help attract investment from big US groups into Vietnam.

US-Vietnam agri-trade optimism tempered by TPP cancellation

US withdrawal from the Trans-Pacific Partnership will deprive American agricultural exporters of the slashed import tariffs that would have resulted upon entry to Vietnam, where their products are now subject to very high tax rates.

Under the Trans-Pacific Partnership (TPP), Vietnam was expected to either reduce import tariffs to 2-5 per cent or remove such tariffs. Currently, Vietnam imposes comparatively high tariffs on many types of US agricultural exports (see box).

For example, according to US Department of Commerce (USDC), the biggest constraint for US poultry exports to Vietnam are high import duties of 20 and 40 per cent on US poultry cuts and whole poultry, respectively. These rates were expected to be reduced to about 2-5 per cent under TPP.

In another case, the combined US exports of apples and table grapes to Vietnam in 2015 totalled $52 million. Vietnam’s existing import duties on apples and table grapes are 10 per cent, which was expected to fall to about 2 per cent thanks to TPP.

However, this dream of tax rate decreases may never come true.

The US Department of Agriculture (USDA) said that for US exporters, a reduction in tariffs under TPP would have “expanded the potential for more US exports of meat, dairy products, and fruit” to Vietnam.

“The TPP agreement also could have provided new opportunities for exports of other high-valued US consumer food products to the growing Vietnamese market,” said a USDA report on TPP impacts on Vietnam’s agriculture.

But even in the absence of such favourable trade conditions, US exports to Vietnam have been on the rise. USDC statistics released in late January 2017 showed that the exports of agricultural, fish, and forestry products to Vietnam have grown over 806 per cent over the past eight years, from $287 million in 2006 to $2.6 billion in 2015. US agricultural exports represented a significant share (37 per cent) of total US exports to Vietnam in 2015 ($7 billion).

Meanwhile, Vietnamese agricultural exports to the US have also grown, though at a slower rate of about 175 per cent over the last eight years, from $1.2 billion in 2006 to $3.3 billion in 2015.

Despite difficulties in both domestic and international business environments, US-Vietnam bilateral agricultural trade in 2015 reached $5.9 billion, a slight year-on-year decrease of 4.8 per cent. Vietnam now ranks as the 11th-largest agricultural export market for the US, with top products including cotton, tree nuts, soybeans, and dairy. - By Nguyen Dat

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