Economists warn of risks for Vietnam in the context of ROK-Japan tensions

Relations between South Korea and Japan are getting worse since South Korea's supreme court decided that Japanese companies have to compensate workers during World War II. Although senior leaders have met many times, there have been no signd of concessions from either side.

With Japan closely monitoring the export of materials used to make semiconductors and computer screens to South Korea, the production activities of Samsung and SK Hynix could be affected. The time needed to fulfill procedures for the export of the products is up to 90 days.

Meanwhile, Samsung has about a one-month reserve of these items and SK Hynix has 3-month reserves. Japan supplies 90 percent of two out of three restricted items and 70 percent of the remaining items to the world.

Rong Viet’s researchers believe that, in such a context, Vietnam’s production and export activities, and its trade balance, would be affected.

The products related to semiconductors and screens, such as computers, phones and cameras, account for 35 percent of total exports. Of these, phones and phone accessories alone account for 20 percent. Once the export of these products slows down, Vietnam’s trade balance would be affected.

Not only making great contribution to exports and trade balance, electronics manufacturing also plays a very important role in the processing and manufacturing industry, which has been the major driving force for Vietnam’s economy in recent years.

Samsung alone generates 160,000 jobs in Vietnam.

The giant electronics manufacturer is seeking alternative suppliers and does not intend to scale down production of chips. Russia and China can supply these products.

Japan has allowed shipments of these products to Korea for the first time since July. In general, Samsung Vietnam’s operations will still go onas usual in August and September with reserves and new shipments.

Meanwhile, Samsung has introduced Galaxy Note 10 for the upcoming high season. However, they said if Japan continues tightening exports, Samsung’s operation in the fourth quarter may be affected. Nguyen Anh Duong from the Central Institute of Economic Management (CIEM) commented that compared with the US-China trade war, the tensions between South Korea and Japan would have a more direct impact on Vietnam.

The impact would be not only in terms of imports and exports. Duong said the tensions would also affect Vietnamese enterprises’ efforts to enter global value chains.