JAKARTA (TheInsiderStories) – United States (US) goods imports from Vietnam soared 35.6 percent last year, as businesses rushed to work around tariffs levied on mainland China. Otherwise, American imports from China contracted a severe 16.2 percent.
Vietnam has figured prominently as a parallel supply chain network although bottlenecks have appeared in procuring skilled labor and contending with congested infrastructure.
Currently, according to Michael Ryan, economics at IHS Markit, the United States has become far and away the most important driver of Vietnam’ export engine, accounting for two-thirds of the nation’ total export growth in 2019. Vietnam’ export dependency on the US climbed from 19.5 percent of total exports in 2018 to 23.2 percent in 2019.
Total goods exports also increased 8.5 percent in 2019, primarily driven by a 29.1 percent surge in exports to the Uncle Sam land. Vietnamese exports to the rest of the world grew by a far more meager 3.5 percent, however.
One of the Southeast Asian countries’ largest commodity export is telephones and parts, accounting for 19.0 percent of total goods exports. Last year, production sent to America was up 64.4 percent, while associated exports to the rest of the world contracted 2.7 percent.
Samsung Electronics shuttered its last smartphone factory in mainland China this past October, consolidating production in Vietnam and India. The company has invested more than $17 billion across eight factories and one R&D center in Vietnam, making it the largest outside investor in Vietnam.
Computers and parts are Vietnam’s second largest group, responsible for 13.3 percent of total exports. Computers and parts destined for the United States more than doubled in 2019, up 111.2 percent, while production meant for other nations increased a more modest 12.9 percent.
On the investment side, total realized foreign direct investment (FDI) to Vietnam rose 6.7 percent to US$20.4 billion in 2019, of which newly licensed projects accounted for $16.7 billion. Capital coming from the US represented less than 1 percent of the total dedicated to newly licensed projects, with most funding coming from other East Asian nations.
American businesses may find it more difficult to take direct investment stakes in Vietnam with a preference for intermediaries, owing to relatively dated trade and investment agreements that would have been replaced by the Trans-Pacific Partnership (TPP), had it passed.
In January 2019, Vietnam ultimately joined TPP‘ successor, the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The country maintains free-trade agreements (FTA) with most major economies on a direct basis, or indirectly under the Association of Southeast Asian Nations (ASEAN) umbrella.
The lack of an FTA with the US remains a major hole in the government’ pro–free trade agenda. Mainland China and Hong Kong businesses committed large sums of capital to newly licensed projects last year, looking to protect their American market share and take advantage of cheaper labor costs.
It remains to be seen how the recent US – China Phase 1 trade accord and outbreak of the coronavirus will shape investment into Vietnam as a parallel global manufacturing hub.
Planning ministry of Vietnam said, the country must work out a stimulus package this month to help businesses cope with a coronavirus epidemic that is expected to keep the economy from achieving a target of 6.8 percent growth this year.
“Vietnam has an open economy and shares a long border with China, so the impact (on Vietnam) will be significant,” said the ministry in an official statement yesterday (02/12).
The central bank should offer credit support for small- and medium-sized enterprises and farmers hit by the virus, it said, such as interest rate cuts and deferred loan repayment, said the department. And the finance ministry should consider cutting taxes and delay tax payment and land rent payment for certain affected businesses.
It urged that the measures be submitted to the government for approval in February. Vietnams hardest hit industries include tourism, transport, electronics, agriculture and insurance, the ministry said.
Vietnams growth in gross domestic product this year would be 6.25 percent if the epidemic was contained within the first quarter, and 5.96 percent if it was contained in the second quarter, it added. Inflation would be 4.86 percent in this year if the epidemic was contained within the second quarter, which would frustrate a target of keeping inflation below 4 percent.
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