With China and the US as its largest export destinations, Vietnam is seeking ways to insulate itself from an escalating trade war between the world’s two biggest economies.
Analysts are calling for measures from devaluing the dong to increasing scrutiny of products to counter an anticipated flood of Chinese goods.
The Hanoi-based National Center for Socio-Economic Information and Forecast — under the Vietnamese Ministry of Planning and Investment — has submitted a report to the ministry on the potential effect of the trade war and how authorities should prepare to defend the economy.
Photo: Reuters
“If the US and China escalate the tension with tit-for-tat moves, it could reduce our exports and foreign investment inflow and hurt domestic production,” center deputy director Luong Van Khoi said in an interview, without giving details of the report.
Vietnam’s reliance on exports and foreign direct investment to power growth makes it vulnerable to the showdown between the US and its trading partners such as China and the EU.
The economy, much like other developing nations, is also under threat from financial volatility with the currency and stocks weakening while inflation is surging.
“It would be naive to think that Vietnam will remain unscathed from the global trade war,” said Eugenia Victorino, an economist at Australia and New Zealand Banking Group in Singapore. “Vietnam is well integrated into global supply chains. The government needs to carefully calibrate its external and domestic policy settings to offset these risks.”
The State Bank of Vietnam, the central bank, should consider devaluing the dong against the US dollar to boost the competitiveness of Vietnamese products, the Vietnam Institute for Economic and Policy Research said this month.
The dong, which has lost more than 1 percent this year and is trading at a record low, is still performing better than most Asian currencies.
“Devaluing the dong can help exports, but it will also fuel inflation and increase costs in importing materials for domestic productions, therefore we must be very cautious,” said Can Van Luc, a senior economist at Hanoi-based Bank for Investment and Development of Vietnam. “A drop of about 2 percent for the dong for the entire 2018 will be suitable.”
With the US threatening more tariffs on Chinese goods, Vietnam is worried that Chinese products such as garments, leather and furniture would flood the local market.
The Vietnamese Ministry of Industry and Trade is working to prevent such an eventuality, Minister Tran Tuan Anh said this month.
The nation last year imported US$57 billion in goods from China.
Ministries should work together to come up with non-tariff measures to limit large inflows of Chinese products, both Luc and Khoi said, adding that authorities need to intensify quality checks at border checkpoints and increase quality requirements.
Reducing costs for exporters and producers by cutting the number of licenses and permits, as well as helping them find new markets, would also help, said Nguyen Anh Duong, head of the macroeconomic policies department at the Central Institute for Economic Management, a government think tank in Hanoi.
Exports, which accounted for 102 percent of GDP last year, are holding up. They gained 16 percent in January to last month from a year earlier, outperforming those in Singapore and the Philippines.
Vietnam has transformed itself into a manufacturing giant and shipments of Samsung Electronics Co alone accounted for about one-fourth of its US$227 billion in exports last year.
It would need exports to remain strong to support economic growth, which eased to 6.8 percent in the second quarter. The government has already forecast a further slowing in the second half of the year.
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