Will textile enterprises benefit from the US-China trade war?

Scarcity of orders of businesses in the textile industry is quite common. Photo: Huong Diu

Vietnamese fiber exports struggle

According to Truong Van Cam, General Secretary of the Vietnam Textile and Apparel Association (VITAS), in the first 6 months of 2018, Vietnam's textile and apparel export turnover increased by 16% as the number of orders placed in Vietnam increased under the initial impact of the US-China trade war. However, in the first half of 2019, the growth momentum was not as expected. There was a shortage of orders, with the number of orders of many businesses at about 70 percent compared to the same period in 2018. This was the case not only for small and medium enterprises, but also in some large enterprises, such as May 10, May Viet Tien and May Nha Be.

“The reason for the shortage of orders is because the US-China trade war has affected the textile industry. Vietnam's exports of fiber to China have decreased. Previously, Vietnam exported on average 1.5 million tons of yarn per year, of which 60 percent was exported to China. Due to the trade war, yarn consumption fell in 2019. In the first 6 months of this year, yarn export growth was only 1.1 percent,” Mr. Cam said.

As a small enterprise directly affected by the impact of the trade war, Mr. Nguyen Van Trung, Director of Minh Hung Import-Export Garment Company, said that besides the supportive policies such as reduction in income tax, China has also applied the policy of renewing the renminbi to increase competition for domestic enterprises before the US imposition of taxes. This makes it very difficult for Vietnam's textile and apparel orders to compete with Chinese enterprises in price.

Raw materials impacted

Commenting on the impact of the trade tensions on the textile industry, Mr. Nguyen Xuan Duong, Chairman of Hung Yen Business Association and Chairman of the Board of Directors of Hung Yen Garment Corporation, said the garment industry does not stand to benefit. The chairman said the hundreds of billions of dollars in taxes that the US will impose on China will also affect raw materials. However, Vietnam's garment industry does not have many advantages compared to China because our average tax rate on the US is about 17 percent, while China is just over 20 percent. India and Bangladesh are more attractive because of their high populations and labour force in the garment industry. Great attention is paid to the textile and apparel industry, including with investment policies.

According to Mr. Duong, in the past year, the Indian textile industry has exported nearly 40 billion USD, with Bangladesh at a similar level. The wages of workers in these two markets are low, as are the tax rates, so China will choose to move to these two markets. For these reasons, Vietnam's advantage in the textile industry is negligible and the most worrying thing is the shortage of goods in the near future.

“Therefore, in the future, I think Vietnam needs to adjust the local price to increase competition. In the past, the domestic currency devaluation was too low, now all countries such as India have reduced prices by nearly 10 percent. Bangladesh made a similar reduction, while China in the past month has reduced by nearly 5 percent. When the VND does not depreciate against the USD, Vietnamese goods will be more expensive and lead to loss of orders. If we continue like this, Vietnam will become a market for all countries to sell to us.

“At the same time, it is necessary to stop raising the minimum wage, reduce interest rates for businesses. In other countries the loan interest rate of businesses is about 2-4 percent while in Vietnam it is nearly 10 percent. It is necessary to make priority for businesses to develop with the help of ministries and sectors," Mr. Nguyen Xuan Duong said.

According to many experts, the increasing trade war between the two economic powers, the United States and China, will affect supply and demand. Other countries and markets such as the US, China, EU and Japan are the main markets of Vietnam, so the purchasing power of these goods will also decrease. Therefore, Vietnamese businesses need to be very careful and pay attention to changes in the future to have a more appropriate adaptation.