Vietnam's garment industry is expected to get big benefits from the US-China trade war

Pham Chi Lan, an economist, commented that the trade war may stagger the investment flow to Vietnam.

“The investment in Vietnam will increase, but there will be unwanted investments as well,” Lan said.

Regarding the garment and footwear industries, experts stressed that origin of materials should be a matter of concern. The US has imposed a tax on $250 billion worth of imports from China, and the US may take action to restrict imports from countries which use materials from China. 

If so, this will be detrimental for Vietnam’s garment industry, which has to import materials from China.

Lan warned that to avoid the high tax Chinese businesses may bring semi-finished products to Vietnam to create finished products for export to the US, or they may cooperate with Vietnamese enterprises to label their products as made-in-Vietnam products and export to the US.

If the exports from Vietnam to the US increase sharply, the US will trace the origin of materials and impose an additional tax if the products are made with Chinese materials. 

Internal problems

Nguyen Binh An, secretary general of the Vietnam Cotton & Yarn Association, noted that there have been big changes in the proportion of exports made by Vietnamese and foreign invested enterprises (FIEs). In 2000-2005, Vietnamese enterprises’ exports accounted for 60 percent of total exports, while FIEs accounted for 40 percent. But now, the figures are 30 percent and 70 percent, respectively, and are expected to be 20 and 80 percent in the future.

Most garment exports are CMT (cut, make, trim) products. FIEs have bigger advantages over Vietnamese ones thanks to bigger resources, including market, labor force, training, technology and material sources. 

Foreign investors come to Vietnam to open factories to exploit the cheap labor force and the loose environmental requirements.

The same thing is occurring with the footwear industry. Its growth rate was 15-21 percent in 2010, but the figure is only 10-12 percent now. 

The problems in material supply sources hinder the development of the industries. In 2017, Vietnam’s garment companies needed 9 billion square meters of fabric, but domestic sources could provide only 4 billion square meters.

In footwear industry, Vietnam has to import 75-80 percent of the volume of leather needed and 30 percent of soles, mostly from China, India and Taiwan. The projects on making materials cannot be developed as they are refused by local authorities for fear of pollution.

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