Trade war likely to drag on, bring fewer benefits than expected
Experts attending a seminar in HCMC today, September 6, agreed that the U.S.-China trade war would continue to drag on, with unpredictable developments, noting that Vietnamese enterprises have enjoyed fewer benefits from it than expected.
At a seminar, themed “Escalating trade war: Vietnamese enterprises’ pleasure and concern,” held by The Saigon Times Group and securities firm Yuanta Vietnam, Dr Pham Sy Thanh, director of the Vietnam Institute for Economic and Policy Research's Chinese Economic Studies Program, noted that trade tensions between the world’s two largest economies will continue to escalate.
Since June last year, both sides have imposed tit-for-tat tariffs on each other’s exports and have not reduced any tariffs. It is becoming increasingly difficult for the two sides to reach a trade deal this year or the next.
Vietnam was expected to replace China in exporting various commodities stateside, thus benefiting from the trade war, but this has not been the case.
For example, the United States imports 40% of its textile and garment products from China but only 15% from Vietnam. In addition, Vietnam’s exports to the United States are mainly from foreign-invested firms.
Former Trade Minister Truong Dinh Tuyen shared this view, noting that both the United States and China have showed no signs of concessions.
Besides opportunities for Vietnam to increase exports to the United States and attract more foreign investment away from China, the complicated developments of the trade war has put local firms at risk. Specifically, the devaluation of the Chinese yuan has led to lower costs of Chinese goods, making them more competitive than Vietnamese products in common markets.
Moreover, as China is facing difficulties in shipping products to the United States, it has sought out other markets, including Vietnam, paving the way for substandard technology from China to enter Vietnam.
Vietnamese enterprises may also purchase Chinese products, complete the final stages of production and export the products stateside, putting Vietnamese products at risk of seeing higher tariffs imposed by the United States.
Regarding the financial market, Matthew Smith, head of research at Yuanta Securities Vietnam, remarked that the Vietnamese financial market has been witnessing the effects of the trade war since last month. Foreign investors have net sold their shares.
In the context of the long-lasting trade war, enterprises were advised to focus on adopting risk prevention measures to minimize losses.
Tuyen stated that the global market has experienced many uncertainties over the past few years. The Sino-U.S. trade dispute has outweighed the risks and uncertainties in the market. Many issues, such as Brexit and the Japan-South Korean tensions, have yet to be addressed.
Local firms should seek more business opportunities in markets that have signed free trade agreements with Vietnam, including Europe and Japan, as these markets will create favorable conditions for Vietnamese firms, as committed to in the agreements, Tuyen said.
The former minister noted that Vietnam has signed the European Union-Vietnam Free Trade Agreement (EVFTA), so local firms should tap the European market, which is home to 500 million people, to avoid depending on a single market.
“Diversifying the import markets will help reduce the trade surplus with the United States and ease the risk of a tariff imposition from the country,” Tuyen stressed.
Staying uninformed has long been the Achilles’ heel of companies, according to Thanh of the research institute. Searching for and analyzing information is expensive.
Thus, firms should connect with enterprise associations to access accurate trade-related information and propose policies to the Government.
As for free trade agreements signed between Vietnam and other countries, local companies should pay close attention to protectionist measures, which are on the rise.
Meanwhile, the expert from Yuanta Vietnam claimed that the U.S.-China trade war involves both the economy and politics, so there are no solutions for addressing the conflict quickly or simply. He advised investors to take issues related to the trade dispute into account before deciding to make an investment.
Further, the Yuanta representative predicted that the VN-Index may reach 1,100 points this year. He made the forecast based on the rising trade volume on the local stock market, which has attracted both local and foreign investors.
Investors are expected to return to the local stock market in the last quarter of the year and stay on the buying side, instead of the selling side as they did in August.
Many funds are storing cash, and it will have to be used for investment, to keep their investment portfolios balanced. Moreover, the Fed’s policies are now more relaxed and advantageous to a thriving economy like Vietnam, explained Smith.