MICHAEL KOKALARI - CHIEF ECONOMIST, VINACAPITAL

The trade war between the US and China will increase the speed of companies moving their production from China to Vietnam. Companies like Foxconn, Samsung, and Daikin are already opening new factories in Vietnam instead of in China, because Chinese factory wages doubled over the last seven years.

Manufacturing wages in Vietnam are two-thirds lower than wages in China, but the quality of Vietnamese workers is comparable to Chinese workers, according to a survey by the Japanese government. Chinese manufacturing companies prefer to relocate their factories to Vietnam instead of to any other country, according to a survey by Standard Chartered.

And now, companies with factories in China will want to move production to Vietnam in order to avoid Trump’s new tariffs. The US is unlikely to target Vietnam in the trade war, given that it has exerted a lot of effort in recent years to build a special relationship with Vietnam, motivated by concerns about losing influence in Asia as China rises.

Despite this special US-Vietnam relationship, most of the new foreign direct investment (FDI) inflows into Vietnam that occur as a result of the trade war will come from Asian companies that make products which are sold in the US, rather than from US companies. This is partly because one goal of Trump’s trade war with China is for US companies to invest more at home. Manufacturing investment will be focused on cell phones, electronics, and other high-tech products due to Vietnam’s close geographic proximity to the supply chains to manufacture those products. Less sophisticated products that do not have complicated supply chains, such as garments, are already moving to countries like Bangladesh that have even lower wages than Vietnam.

Finally, China exported about $250 billion of high-tech products to the US last year, compared to less than $8 billion from Vietnam, so Vietnam’s high-tech exports will continue soaring for years as production moves from China to Vietnam. About two-thirds of the high-tech products the US imports are made in China, so America needs to reduce its dependence on China by diversifying to other suppliers, making countries like Vietnam and Malaysia the biggest winners from the US-China trade war, according to Standard Chartered.

An economic analysis from the University of Groningen called “World Input-Output Database (WIOD)” suggests that Vietnam’s economy will ultimately get a 2-per-cent boost from the trade war, but in the short term, trade tensions have a much bigger impact on investor sentiment than on the economy.

Trade war concerns triggered major corrections in all Asian stock markets, including Vietnam, demonstrating how fearful investors are about this topic.

The new US tariffs will reduce China’s GDP by about 0.2 per cent, but the drop in the value of China’s stock market due to the trade war is about 5 per cent of GDP, or 20x larger than the actual economic loss the country will suffer.

NGO DANG KHOA - HEAD OF GLOBAL MARKETS, HSBC VIETNAM

The trade tensions between China and the US will have mixed impacts on the Vietnamese market. The new tariffs that the US imposed on China and the response of China as well as other economies may have an adverse effect on global GDP growth in general and trade growth in particular, with exports affected subsequently.

The US tariff barriers on imports from China will not only take a toll on China, but will indirectly affect global supply chains, as exports from other Asian economies, including Vietnam, to China for assembly and re-exporting to the US will be influenced. In addition, some US trade restrictions on items like steel, aluminium, and washing machines have also been applied on products originating in Vietnam. What this means is that trade protectionism has spread on a global scale and will continue posing challenges for economies that depend largely on exports, like Vietnam. The US government’s tariff on washing machines is going to have a major impact on Vietnam, which, along with Thailand, is one of the two largest exporters of washing machines to the US. Proposals for additional tariffs on other commodities, particularly electronics and textiles, may result in even bigger negative impacts on the local economy should they be approved by the US government.

On the other hand, the US tariffs on Chinese goods can make it advantageous for Vietnamese assemblers to export directly to the US instead of indirectly participating in the supply chain, as was done previously. The price of Chinese exports will now become higher due to the additional duties. FDI inflows into Vietnam are forecast to improve as a result, as multinational corporations gradually move their production capacities from China to Southeast Asia, for its competitive advantage in labour costs.

Looking beyond the trade war, the overall picture of the global economy may have several other notable aspects. Although the dependence of Asian countries, including Vietnam, on Western counterparts has declined dramatically following the global financial crisis, the Vietnamese economy is still exposed to the Federal Reserve’s interest rates hikes, the stronger dollar, and tightened monetary policy, all of which slow the economy’s growth momentum with high credit growth.

The trade tensions create great challenges, but also open up relatively clear opportunities for Vietnam. With a competitive advantage in labour costs, impressive economic growth, and stable macro-economics, the country will continue to be a destination for FDI inflows if it steps up to the challenge.

THARABODEE SERNG-ADICHAIWIT - SENIOR VICE PRESIDENT AND GENERAL MANAGER, BANGKOK BANK (VIETNAM)

In my view, if the US does not import from China, they will need to import from other countries, due to the higher production costs in the US. Vietnam is now one of key production hubs of the region, evidenced by substantial export growth each year, and is in the best position to export more to the US.

I believe that both FDI from Chinese investors and FDI from US investors in China will look for new production bases to maintain their existing US market penetration. Coupled with the substantially higher production costs in China, FDI flows to Vietnam will reach new heights, a so-called “new normal”. In the region, Vietnam is considered to be the best production base due to its stable political landscape, growing local consumption, young population with an abundance of labour, competitive production costs, a large number of free trade agreements, and acceptable infrastructure. No country is more suitable than Vietnam.

Now is the best time for Vietnam to aggressively draw capital investment from the US. If the Vietnamese government can accelerate its negotiations on a bilateral trade agreement with the US government, it would be very helpful for Vietnam.

Due to China’s huge market, only those US investors that use China as a production base for exports to the US will opt for Vietnam. I think with these new, huge FDI flows to Vietnam, local industries such as steel, cement, industrial parks, plastics, and services including healthcare, education, and banking will all benefit.

VU TIEN LOC - CHAIRMAN, VIETNAM CHAMBER OF COMMERCE AND INDUSTRY

With the looming trade war, investors from China and some other countries may choose to shun the US and seek new markets in the Asian region, prompting them to invest in Vietnam and ASEAN. This is set to provide Vietnam with an opportunity of becoming the next manufacturing hub in the region.

However, there are a few problems to look out for when it comes to FDI in these volatile times. First, some foreign investors may use Vietnam mainly to camouflage the origin of their products and to evade US tariffs set on China. This action will result in a flooding of imported goods into Vietnam, affecting pricing as well as the competitiveness of Vietnamese products.

Second, FDI inflows may bring outdated technology from other countries to Vietnam, with the country coming to be treated as a ‘dumping ground’ for foreign powers. As nearby countries move up the supply chain, some investors may come to Vietnam merely to dispose of old facilities while disguising their actions as investments.

In both scenarios, these types of FDI should not be encouraged as long-term actions. Vietnam does not benefit from any such technology transfer and it does little good for the domestic market. This is why I think Vietnam should keep a close watch on what kind of FDI it may attract in the global trade war.

NIRUKT SAPRU - CEO OF VIETNAM, ASEAN, AND SOUTH ASIA, STANDARD CHARTERED BANK

I believe the ‘trade war effect’ will depend on whether the foreign investor targets Vietnam’s export power or burgeoning domestic market.

If the investor comes to Vietnam to manufacture, then export products, then global trade tensions with rising tariffs will certainly be an issue. On the other hand, if the investor wants to take advantage of the lively consumption market inside Vietnam, then external volatilities in trade will not have much of an effect.

I think Vietnam indeed offers a lot of winning points for investors of the second type. The country offers strong GDP growth, reaching 7.08 per cent for the first half of 2018; steady macro-economics; political stability; and low production costs. Also important in foreign investors’ eyes is Vietnam’s emerging affluent population, who has rising consumption power and optimism for the future. In other words, what matters to these investors is the higher spending power of Vietnamese people themselves, not external trade issues.

This also explains why FDI activities in Vietnam have been particularly interesting in terms of consumer-oriented sectors such as consumer goods, real estate, and retail. ASEAN investors tend to have an edge over those from other regions, as their home markets have more similarities with Vietnam.