- Vietnam has emerged as a large beneficiary amid the U.S.-China trade deal. A new deal is solidifying Hanoi’s privileged position.
- Vietnam and the European Union on Sunday inked a first-of-its-kind trade deal that will eliminate 99% of tariffs on goods imported from the Asian developing nation to the bloc.
- Meanwhile, the U.S. government is signalling that it could be aiming to exact trade concessions out of Hanoi.
European Commissioner for Trade Cecilia Malmstrom (L), and Vietnamese Minister of Industry and Trade Tran Tuan Anh (R) sign the EU-Vietnam Free Trade Agreement in Hanoi on June 30, 2019. Tien Tuan | AFP | Getty Images
As the ongoing U.S.-China tariff battle upends global trade, many countries are worried about suffering ill effects. The EU-Vietnam deal demonstrates, however, that Hanoi is poised to come out of the era as one of the great beneficiaries.
“From Vietnam’s perspective, enhanced access to the EU market could not come quickly enough,” said Brian Harding, deputy director and fellow at the Southeast Asia Program of think tank Center for Strategic and International Studies.
Vietnam is currently the EU’s 16th largest trade partner the trading bloc’s second-largest trading partner among Southeast Asian countries, according to the European Commission. In 2018, the country exported $42.5 billion worth of goods and services to the EU. The value of imports from the region reached $13.8 billion, official data shows.
The Vietnamese government said on Sunday that the EVFTA would boost EU exports to Vietnam by 15.28% and those from Vietnam to the EU by 20.0% by 2020.
That’ll be the latest addition to Hanoi’s increasing tally of strong bonds with the global trading system.
The country now has “preferential access to the EU, Canada, and Mexico,” Harding said, adding that he therefore expects “further growth in Vietnamese exports to these economies.”
Vietnam’s economy is now one of the fastest growing economies in the region, and it’s mostly supported by robust domestic demand and export-oriented manufacturing, according to the World Bank.
“Vietnam is clearly benefiting from the trade war and is emerging as an alternative favorite for companies,” said a report produced by Dezan Shira & Associates in April.
Harding echoed that assessment, adding that, among the many Southeast Asian countries trying to take advantage of the trade war, “Vietnam has clearly been the winner.”
The increase in Vietnamese exports can also be largely attributed to free trade agreements the country has strategically entered into over the last few years.
That includes the multinational Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is the updated version of the now-defunct Trans-Pacific Partnership. When Trump pulled out of the 12-nation TPP, apparently resigning the deal to history’s wastebasket, Hanoi was deeply disappointed, according to Harding.
Still, he told CNBC, Vietnam has nevertheless benefited significantly from the reworked 11-party pact, especially from having access to Canadian and Mexican markets.
Storm clouds may be gathering, however, Harding warned. A surging U.S. trade deficit with Vietnam means the Southeast Asian country should be worried because there “is clearly a risk for the overall relationship, given President Trump’s perspective on bilateral trade balances. ”
In fact, Trump recently upped the rhetoric on Hanoi, telling an interviewer that “Vietnam is almost the single worst — that’s much smaller than China, much — but it’s almost the single worst abuser of everybody.”
Hanoi now seemingly has a target on its back, but Harding said the country isn’t at risk of White House-induced economic disaster.
“If Trump does begin to talk seriously about tariffs, Vietnam will not be caught off guard,” he said, adding that the government there has “navigated the Trump administration quite well.”
While the new trade deal apparently represents a solid victory for Vietnamese exporters, it also signals that Europe is serious about diversifying its trade relationships.
The bilateral trade and investment negotiations between the EU and Vietnam were launched in 2012 and finalized in 2018. That pact, along with the bloc’s recent deal with Southeast Asian city-state Singapore, makes for for what EU officials described as “stepping stones to a greater engagement between the EU and the region.”
Looking at the bigger picture, Southeast Asia is the EU’s third-largest trading partner after the U.S. and China, so any free trade advancements in the region are significant for the bloc.
According to a survey conducted by the European Chamber of Commerce in Ho Chi Min City, over 90% of respondents believed the sooner the two parties could formalize the implementation of the agreement, the faster it will benefit businesses operating in Vietnam.
The chamber said in an email to CNBC that its members believed the free trade agreement would have a positive impact beyond just economics. In fact, the trade deal will be able to bolster social and environmental issues as well, it said.
The success with the EU may also spur even more international interest.
“So long as Vietnam remains the only Southeast Asian manufacturing hub with preferential access to the EU, it will attract even more interest from foreign investors,” said Harding.