Vietnam stands to lose from trade war between big powers

The Vietnam Institute for Economic and Policy Research (VEPR) has cautioned that the ongoing trade war between the U.S and China is changing the dynamics of trading in the world, and would eventurally hit Vietnam more than in its exports sector.

Pham Sy Thanh, head of VEPR’s Chinese Economic Studies Program, said: “When a large economy decides to protect itself, other economies will start to imitate.”

Global trade growth last year reached 4.7 percent, but this year’s estimate of 3.1 to 5.3 percent shows that even top economists are uncertain about how the trading picture will turn out after this trade war, he said.

If this continues, multilateral relationships will be replaced by bilateral ones, which will be a disadvantage for a developing country like Vietnam, because stronger countries will have more resources and power to negotiate, he said.

Another consequence of the trade war on Vietnam is that it will be profoundly affected as global production chains shift.

As the lack of workforce is no longer a big problem thanks to the fourth industrial revolution, “smaller countries will lose their advantage in just a few years,” he said, adding that technology giants, such as Foxconn, are now investing more in manufacturing in its own country, the U.S.

When large corporations no longer see the attractiveness of developing countries, their capital will flow back to the big countries, and the abundance of labor will no longer be perks for developing countries such as Vietnam, Thanh said.

The U.S. has announced that it would slap a 10 percent tariff on $200 billion worth of Chinese export goods as soon as September. This announcement came after it slapped a 25 percent duty on about $34 billion worth of Chinese goods earlier this month.

China had retaliated “immediately” with a similar action, the country’s foreign ministry had said in response to the first move by the U.S.