Benefits and damages when the US-China Trade War "escalate"

The textile industry is seen as one receiving a lot of benefits from the US-China trade war. Picture: Nguyen Thanh.

Opportunity is not too big

Recognizing that the US-China trade war was “escalating”, Dr. Tran Toan Thang, Head of the World Economic Board (National Center for Socio-Economic Information and Forecasting, the Ministry of Plan and Investment) said, "This will have a negative impact on Vietnam's GDP. In 2018, the exports may increase slightly higher than the target of over 8%, but the benefits of export for the current growth tend to decrease. Meanwhile, I think that the impact of the exchange rate risk will be very high, affecting interest rates and inflation, which will greatly affect growth. In the first 2 quarters of this year, the GDP growth rate was quite high. Therefore, for the whole year it can still reach a peak of 6.8% growth. But if inflation is on the rise due to the factors of oil price or fluctuation of exchange rates, the growth at the end of the year as well as the beginning of 2019 will be affected.”

On the side of Vietnamese interests, as the US-China trade war intensifies, especially now the United States has imposed 10% tax of US$ 200 billion on Chinese goods, according to Mr. Thang, there are many opportunities for Vietnamese export items into the United States. Therefore, the positive impact can easily be seen that the "escalation" tension opens up the opportunity to promote the Vietnamese goods export into the United States thanks to the increase of price competitiveness. "However, the opportunities are not too big. Two issues need to be paid attention to. Firstly, the Vietnamese goods with an advantage for exporting into the US are common consumer goods with low price elasticity. Secondly, many other countries also export these items into the United States,” said Mr. Thang.

From a commodity point of view, some experts point out: Textiles, machinery, steel and construction products ... will be impacted directly in the coming time due to the trade war among the two powerful countries. For raw materials, due to the market pressure as well as the decrease of the yuan (CNY), these can reduce the price of imports from China. This is beneficial for the enterprises, especially the FDI enterprises. However, according to AP. Dr. Pham Tat Thang, Senior Researcher, the Trade Research Institute (Ministry of Industry and Trade), when the Chinese goods face difficulty to enter the US market, China will find ways to push their goods into other markets, especially the surrounding markets, including Vietnam. This puts high pressure on Vietnamese enterprises in the domestic market. Unlikely to be competitive, the enterprises may have to narrow their production.

Flexible exchange rate policy

As the US-China trade war intensifies, Mr. Le Hai Mo, Deputy Director of the Financial Strategy and Policy Institute said, because the United States and China were major Vietnamese markets, it is likely to have a great impact on Vietnam now these economies are caught up in a trade war. In particular, the impact that should be a concern is currency fluctuations. This is a sensitive issue because macroeconomic stability would be affected if there was no suitable solution.

With the same view, Mr. Bui Ngoc Son, the World Institute of Economics and Politics, emphasized that the US-China trade conflict would be complicated because of the geopolitical aspect. For Vietnam, in order to maintain the competitiveness of the economy in the context of currency fluctuations and global trade flows in the past, the exchange rate policy needed to remain flexible and swift. However, the adjustment level must be greater to compensate the difference of exchange rate between the CNY and VND.

"Since the beginning of the year, the CNY has depreciated by almost 9%, while the VND has been adjusted down by 3%, which means the VND appreciated more than 5% against the CNY. This makes the competition of Chinese goods increase significantly compared to Vietnamese goods. In other words, the importance of the CNY in Vietnam's exchange rate policy needs to increase, because China is the second largest economy in the world and became Vietnam’s largest trading partner. Meanwhile, many kinds of Chinese goods are competing directly with Vietnamese goods,” Mr. Son explained.

Dr. Trần Toàn Thắng added that the US-China trade war was tense, some industries had benefits, others had damage, it needs more time to analyze. However, in the short term, Vietnam needs to find ways for reacting to the changes of exchange rate in accordance with new developments, especially pay attention to foreign exchange reserves and attract more FDI capital to improve the foreign exchange balance. In addition, we should analyze deeper to find suitable alternatives because the United States might promote the solutions for trade remedies

From a trading perspective, according to Mr. Son, the solution for Vietnam was to prioritize efforts to establish Free Trade Agreements (FTAs) with major markets such as Japan, the EU and the United States, to ensure the most stability and importation to these export markets, (because the Vietnamese economy is heavily dependent on exporting), at the same time, diversify the export markets by trade cooperation with other countries. Regarding the interest rate issue, Mr. Son said that the interest rate policy should focus on macro stability instead of emphasizing on growth in the context of many changes.