Why Trump’s threats on Vietnam trade won’t stop manufacturers setting up shop

Vietnamese currencyVietnamese currency

U.S. President Trump may have trained his sights on Vietnam as another front in his trade war, but Taimur Baig, chief economist at DBS, said that’s not likely to slow the tide of firms setting up shop in the Southeast Asian nation.

Vietnam has been in the spotlight as a likely beneficiary of businesses moving out of China to avoid U.S. tariffs.

But Trump threatened to rain on that parade, saying late last month that he planned to expand his trade war to Vietnam, which he called “the single worst abuser of everybody” in a Fox Business interview.

That was after Vietnam’s customs data show the country’s exports to the U.S. were up 29 percent on-year in the January-to-May period, Reuters reported.

Speaking at a client event for DBS Private Bank Thursday, Baig noted that Trump’s threat was in line with previous saber-rattling over other beneficiaries of the U.S. trade war on China, including Mexico.

But the economist didn’t think the threats would be enough to keep companies from moving to places like Vietnam.

“There is a longer term trend that was evident before Trump came in, which is that as China becomes more expensive, as China grows more, there will a lot of low- and medium-end value-added activities out of China that will move into the Vietnams and Thailands and South Asias of the world,” Baig said. “Offshoring has been taking place for more than a decade and will continue to do so independent of the trade war.”

However, Baig said that China likely won’t need to worry about losing its dominance of the electronics supply chain.

“The economies of scale that Chinese large manufacturing plants offer is impossible to match by any other manufacturer in the world,” Baig said. “Similarly, in terms of supply chain logistics and warehousing, China still offers unparalleled expertise and depth that virtually no country in the world can replicate.”

As an example, Baig cited Apple’s decision to move production of its Mac Pro computer to China from the U.S. That was initially reported by the Wall Street Journal, citing people familiar with the plans, and had marked the only major device Apple assembled in the U.S.

To be sure, not everyone agrees that Trump’s threats won’t hurt manufacturer momentum in Vietnam. Ethan Harris, head of global economics at Bank of America-Merrill Lynch, said earlier this week that Vietnam was likely to become the Trump administration’s “No.1 target” ahead.

But both Baig and Harris agreed the trade war is hurting business investment.

Harris said, “it’s becoming increasingly hard to figure out where you’re supposed to invest.”

Similarly, Baig pointed to an uncertain environment.

“We may have massive gains in financial markets but in the real economic side, no one really knows where to go,” Baig said. “As long as tariffs are used as a weapon of commerce, a weapon of settling differences, it will have a very negative impact on investment.”

While you’re here, we’re hoping you can help us out.

Shenton Wire has been providing you with quick news and market analysis. But we need your support to continue to bring you the news you’ve come to expect and to expand our reach beyond Singapore.

Your monthly contribution will directly fund our journalism.

S$2     S$4       S$8

S$18       S$28       S$88

You can check your existing account here. You can also contact us about other contribution levels or for corporate subscriptions and syndication queries.