Bracing for Next U.S.-China Trade War

Shrimp exports to the U.S. are highly likely to face antidumping duty investigations

The U.S.-China trade war is likely to intensify, with Trump planning tariffs up to 60% on Chinese goods, and possibly 200% on items like electric vehicles and solar batteries. China’s economy is struggling with deflation, low demand and falling commodity prices. As tariffs rise and production costs increase, many foreign businesses are considering moving production to countries like Vietnam and India to maintain access to the U.S. market.

Many opportunities for Vietnamese businesses

The trade tensions create opportunities for Vietnam as the U.S. looks for new suppliers. Economists predict this could boost Vietnam’s GDP by 0.5% through better supply chains and more U.S. imports.

Vietnam has a chance to increase its market share in the U.S. as Chinese products face high tariffs. Vietnam can export goods like textiles, electronics and agricultural products that the U.S. once sourced from China.

According to the General Statistics Office, the U.S. remains Vietnam’s largest export market, with exports totaling US$98.4 billion in the first 10 months of this year. The trade surplus with the U.S. reached US$86.1 billion, up 26.9% from last year.

In this context, Vietnamese exporters with clear proof of origin that meet U.S. requirements stand to benefit significantly. Increased volumes of goods transferred directly or indirectly through Vietnam to the U.S. are also expected to drive growth for logistics and warehousing businesses.

Additionally, Vietnam can attract foreign investment as many companies seek to shift production away from China to avoid high U.S. tariffs. With advantages in cost and location, Vietnam has become an appealing destination for international companies, contributing to long-term economic growth.

Industrial real estate companies in Vietnam are among the biggest beneficiaries as international businesses plan to shift production to Vietnam. Industrial zones in northern and central Vietnam, like Hai Phong, Bac Ninh and Binh Duong, are seeing a rise in land rental demand. Logistics and warehousing companies will also benefit as goods flowing through Vietnam to the U.S. increase.

Vietnam’s VND, pegged to the USD, gives its exports a competitive edge as the USD strengthens. This is an advantage in light of a weakening Chinese Yuan, making Vietnamese goods more accessible and appealing to the U.S. market.

Challenges across multiple sectors

While U.S.-China trade tensions create opportunities, they also pose significant challenges for Vietnam. One major concern is the potential influx of low-cost Chinese goods into Vietnam, as China faces obstacles in exporting to the U.S. This shift could intensify competitive pressure on domestic manufacturers. According to the General Department of Vietnam Customs, imports from China increased by 15% in 2023 compared to the previous year, partly due to Chinese goods redirected to other markets, including Vietnam, after facing U.S. trade barriers.

Furthermore, U.S. scrutiny over the origin of goods is expected to tighten to prevent Chinese products from being mislabeled as "Made in Vietnam" to bypass tariffs.

The Ministry of Industry and Trade reported that Vietnam has faced nearly 100 anti-circumvention investigations into its exports to the U.S. over the past year, highlighting the need for businesses to follow strict rules of origin to avoid legal risks. The rise in investigations and demand for detailed documentation could complicate export processes for Vietnamese companies.

Exchange rate fluctuations are adding further pressure on Vietnam’s economy. As the USD appreciates, the VND faces downward pressure, raising import costs and fueling inflation risks domestically. During the initial U.S.-China trade war, the VND depreciated by around 3% against the USD, resulting in higher import costs and inflation concerns. If this trend continues, Vietnamese businesses may not only struggle to maintain their competitiveness but also face mounting cost pressures.

The first U.S.-China trade war also led to a strengthening of the VND against the Chinese Yuan, making Chinese goods increasingly affordable and encouraging their influx into Vietnam through both official and unofficial channels. This poses a serious threat to domestic goods, which already face difficulties competing with Chinese imports.

Furthermore, Vietnamese businesses may also be at risk of facing anti-dumping duties and higher U.S. import tariffs, especially as Vietnam remains classified as a non-market economy. Current low import duties on Vietnamese goods like wood and seafood could be subject to change if trade tensions escalate, potentially undermining the benefits of trade reallocation.

Vietnam’s stock market could also feel the impact of U.S. policy changes. The VN-Index experienced short-term declines following Trump's election victories in 2016, before recovering in the medium term as investors gained a clearer understanding of trade and financial policy impacts. However, financial analysts suggest that U.S.-China trade tensions typically have only short-term effects on the VN-Index. Still, risks from policy volatility and potential U.S. tariffs on Vietnamese exports remain important factors for both domestic and international investors.

The U.S.-China trade tensions bring both opportunities and challenges for Vietnam. To fully leverage the current situation, Vietnam needs to tighten controls on product origins, maintain exchange rate stability and boost the competitiveness of local businesses. Timely adjustments will enable Vietnam to harness these advantages in an increasingly competitive global trade environment.