Vietnam somehow will take advantage of the escalation of the US-China trade conflict, although the world`s economy in general may suffer from it.

Vietnam's electric and garment industries may benefit from the escalating US - China trade war, Hanoi-based Bao Viet Securities Corp (BVSC) has analyzed.  

FDI rerouting to Vietnam

In 2017, eight out of China's top ten export categories to the US were in the groups of mobile phones, electronic devices and telecommunication equipment. Total export value of these eight groups were about US$256 billion, accounting for 50% of China's total export turnover the US. 

From BVSC's point of view, the Trump administration's expansion of trade war to all these Chinese imports could be counterproductive and the US companies and consumers would suffer the most. In the near future (about five years), hardly can any countries in the region completely replace China in processing electronic products due to the advantages in China such as developed infrastructure and auxiliary industries developed in this country. Capital flows from large corporations may run out of China but the scale would be insignificant.

Mobile phone exports from China to the US posted a value of US$70 billion in 2017, occupying 86% of mobile phone import value to US Top 5 mobile phone brands manufactured in China and exported to the US are Apple, LG, ZTE, Motorola and Samsung. If the US-China trade conflict escalates to full scale, mobile phones also suffer higher tariffs. 

At present, Vietnam is the largest manufacturer of Samsung with 240 million units per year, followed by China with 150 million units per year, India (50 million units), South Korea (40 million units), Brazil (12 million units), and Indonesia (8 million units). Samsung is planning to cut production by 40 million units in China due to higher labor costs and the escalating US-China trade war, encouraging this behemoth to pour investment into other countries. 

In this context, capital flows from Samsung may run into Vietnam. Accordingly, FDI and exports of Vietnam will be improved, industrial zones will benefit, more new jobs will be created. Other manufacturers of electronic appliances may also see the similar trend. 

Vietnam's textile industry to gain more market share

In 2017, the US accounted for 17% of China's total garment exports, while 50% of garments consumed in the US are originated from China. Thus, regarding textile and garment industry, the US is more dependent on China. 

According to BVSC, higher tariffs will encourage US multinationals operating in China as well as Chinese domestic firms to shift their orders and operations to other countries in order to avoid tariffs. Competitive countries in textile and garment sector such as Vietnam, Bangladesh and Cambodia will benefit from the escalating US-China trade war. 

In 2017, the US was the largest textile export market of Vietnam, occupying US$12.2 billion (equivalent to roughly 50% of Vietnam's textile and garment export turnover). The US levies tariffs of 8-10% on garments imported from Vietnam. BVSC predicted that Vietnam's textile is one of the most beneficial industries amid US-China trade war for two reasons. 

Firstly, the sharp depreciation of the yuan against the US dollar caused the devaluation of the yuan against VND, allowing firms to import fabric, footwear leather and other materials at lower prices. Secondly, Vietnam company in textile industry can gain more market share of China in the US thanks to more competitive prices. 

However, the company will benefit on a moderate and gradual scale. Textile companies listed on the stock exchange such as TCM and GMC could benefit, but the advantages would be insignificant because these companies have operated at full capacity with further investment plans in the short term.

If these companies gain more orders from the US, they will also have to outsource their work and accept lower profit margins.

Hanoitimes