The imposition of aggressive US tariffs has been greeted with a surplus of strong reactions, almost none of them good. Bewilderment and dismay are among the more sanitized responses from trading partners of the US.
To their great disappointment, Washington’s friends have not been spared, even those with whom it trades on very favorable terms.
The investor class has given US President Donald Trump’s salvo, which significantly raises the chances of a global recession, a scornful rejoinder.
In the case of a few countries, let us consider an additional response — one of sympathy. Vietnam ought to be near the top of the condolence list. It came late to the Southeast Asian export machine, but became one of the world’s fastest-growing economies, and ties with the US have steadily warmed since the US-backed regime in the South fell to communist forces 50 years ago.
While still poor relative to Singapore, Malaysia and Thailand, Vietnam’s leaders adopted large parts of the development model that proved a boon to much of the region. The government eased curbs on investment, welcomed supply chains, was attentive to infrastructure needs and took steps to combat corruption. When the US sought to isolate China, the nation became a popular destination for manufacturing giants wanting an inexpensive location and a skilled labor force. It was a darling of the “China plus one” crowd.
Vietnam was, as a result, often depicted as the closest thing to a trade-war winner.
That label cannot be applied after Wednesday last week. With great achievement came considerable danger. The charges leveled at China in prior years began to accumulate: Vietnam’s central bank kept its currency artificially weak, the one-party state was opaque in its decisionmaking and swathes of the economy remained off-limits to foreign money.
The levy of 46 percent was among the steepest handed down by Trump during the “Liberation Day” ceremony at the White House.
There is tragedy here. The penalties will deal a heavy blow to the Vietnamese economy as a whole, and to the middle-class aspirations of millions.
Irony is also present. While certainly not flawless, the country did a lot right. It correctly identified the US market as the route to higher living standards and did its best to cater to the corporations that thought they read the tea leaves correctly by loosening dependence on China. They got hit with crippling tariffs, regardless.
The mistake might have been to be too successful. Factories certainly churned out a lot of goods that American consumers desire.
More than one-quarter of Vietnam’s GDP depends on shipments to the US, according to Bloomberg Economics. Exports overall are equal to about 90 percent of its economy.
Many textile and apparel companies are at high risk of failure, reckons the main industry organization in Ho Chi Minh City.
About half of all Nike Inc and Adidas AG shoes are made in the country. Uniqlo owner Fast Retailing Co and Hennes & Mauritz AB also count it as one of their biggest suppliers.
Vietnam’s export campaign goes beyond textiles and footwear, as lucrative as these plays have been. Intel Corp operates a chip assembly and test manufacturing facility. Apple Inc was also attracted to set up an operation.
For all the allure of Vietnam for Western companies, Beijing also found it irresistible. US officials have chafed at the Asian giant’s investment there, which they see as a thinly veiled effort to muscle into supply chains that have nominally decamped from China.
During a 2020 visit, Trump’s then-national security adviser Robert O’Brien urged Hanoi to combat the rerouting of Chinese exports. Mexico, which has also witnessed an increase in Chinese interest, has similarly been pressured by Washington to restrict overtures. Vietnam’s economic growth target of at least 8 percent this year now looks implausible, assuming Trump’s duties stay. (Hanoi asked the US to put the levies on hold and engage in negotiations.)
A percentage point or two off the pace of expansion might be the least of officials’ worries if an entire approach to attaining prosperity is now open to question.
If the White House’s duties extract a heavy cost, part of the calamity for Vietnam is that something like this has been in the cards for a while. The trade surplus with the US has widened significantly. In Trump’s first term, he went from lauding Vietnam as a worthy template for development to decrying it as one of the chief abusers of the trading system.
In late 2020, the US Department of the Treasury designated the country a currency manipulator and a panel convened by the US Trade Representative heard complaints about not only foreign-exchange shenanigans, but the danger posed by cheap imports. There was pushback from firms that had responded to calls to shift production from China. The sentiment was along the lines of: Are we supposed to uproot again, and, if so, where?
Trump appears to care little for such practicalities.
Southeast Asia did not fare well on what Trump claimed was one of the most important days in history. Cambodia, Thailand, Malaysia, Indonesia and the Philippines were all punished, although for what remains unclear. Singapore, which suffered the minimum tariff of 10 percent, fared less badly than its neighbors.
Still, Vietnam’s treatment stands out. To assert that Hanoi should have seen severe measures coming is a reasonable observation. Leaders did recognize some vulnerability; days earlier, Vietnam slashed tariffs on a range of imports. That does not make what was meted out by the White House fair. The nation jumped through the right hoops over the years and got hobbled. Every textbook has its use-by date. And the US has let it down, again.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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