THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS --------- NGUYỄN NGỌC HUYỀN Student code: 18A4050108 The US-China Trade war: Opportunities and Challenges for Vietnam BACHELOR’S THESIS Hanoi, May 2019 THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS --------- NGUYỄN NGỌC HUYỀN The US-China Trade war: Opportunities and Challenges for Vietnam Major: International Business Code: 734.20 BACHELOR’S THESIS Supervisor: MEc. Lê Hà Trang Hanoi, May 2019 DECLARATION I assure that my Bachelor’s thesis with the topic "The US-China trade war: Opportunities and challenges for Vietnam" is my personal research under the guidance of Ms. Lê Hà Trang - Lecturer of International Business Faculty at Banking Academy. The data used for analysis in the thesis have a clear origin and cited in accordance with regulations.
The research results in the thesis are self-studying and analyzed objectively. I will take all responsibility for my own thesis. Hanoi, 18th May 2019 Nguyễn Ngọc Huyền ABSTRACT The US-China trade war is considered the most influential economic event in the world economy in 2018, when the world’s two largest economies continuously attacked and retaliated against each other by increasing import tariffs. It can be said that no party can be a winner in a trade war, and the consequences of trade protection measures are likely to spread to other parts of the world.
Vietnam has had a highly integration into the global economy, and close commercial relationships with China and the US, therefore this country was expected to be affected by the trade war whether in a positive or negative way. The present study intends to provide an overview of the US-China trade war, analyze opportunities and challenges to Vietnam along with up-to-date data and conclude by proposing solutions for domestic enterprises as well as the government. Key words: non-market economy, MIC 2025, export-import activities, FDI diversion, workforce, pollution, Asia countries… INDEX Abbreviated character table. 7 List of figures and tables.
THE US-CHINA TRADE WAR OVERVIEW. Definition of trade war. Reasons of trade war. The impact of a trade war.
The US-China trade war escalation. Reasons of the US-China trade war. The impacts of the trade war on the US and China’s economy. Impacts on the US.
Impacts on China. Bilateral trade balance. THE IMPACTS OF THE US-CHINA TRADE WAR TO VIETNAM. Vietnam’s trade relations with China and the US.
The trade relationship between the US and Vietnam. The trade relationship between China and Vietnam. Export – Import activities. Foreign Direct Investment.
Solutions for Vietnamese enterprises. To take advantages of the US-China trade war. To limit negative impacts of the US-China trade war. Suggestions for Vietnamese government in the long term.
1 ABBREVIATED CHARACTER TABLE ADD Anti-dumping duty AEC ASEAN Economic Community ASEAN Association of South East Asian Nations CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership EIU Economist Intelligence Unit EU European Union FDI Foreign Direct Investment FTA Free Trade Agreement IPR Intellectual Property Rights MIC Made in China PCI Provincial Competitiveness Index RBM Renminbi (Chinese currency) TPP Trans-Pacific Partnership US/USA United States of America USAID United States Agency for International Development USITC United States International Trade Commission VCCI Vietnam Chamber of Commerce and Industry WTO World Trade Organization LIST OF FIGURES AND TABLES Figure 2. Vietnam's export-import to the US (2007-2018). Vietnam's import-export to China (2009-2018). Vietnam’s FDI flow in 2018.
Vietnam's export value to large markets. The change in export/import value of Vietnam's phones and components. Vietnam's soybean import volume to large markets. Vietnam made up about one fifth of ASEAN's FDI (excluding Singarore) as of 2017.
Top FDI sectors of Vietnam in 2018. Difficulty in recruiting workers. Percentage of workers remain with the firm for longer than a year after being trained. Post-entry regulations for Forein Firms.
Preamble Globalization is the word used to describe the growing interdependence of the world’s economies, cultures, and populations brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information. Its three main benefits are to increase FDI, stimulate new technology development and achieve the economy of scale. Furthermore, the path to globalization is free trade, which is viewed as an ideal type of market where an exchange of goods and services between countries is done without being controlled by import policies. The increase in the number of FTAs signed between countries and the emergence of new-generation FTAs like Trans-Pacific Partnership (TPP), North American Free Trade Agreement (NAFTA)… shows the common goal of countries.
It is globalization. However, in the context that the world economy is still stagnant, globalization has not shown significant results, it is not difficult to explain why the protectionism is gradually returning to the largest economies, typically the United States of America (US) and China. The nature of trade protectionism is that a country's government wants to protect domestic products by imposing a high tax on imported products from other countries. By using protectionism policies, the country aims to stimulate domestic demand and trade, to contribute to the country's economic growth, and to avoid trade deficits with its partners.
In 2016, a remarkable event that changes the global economy is the election of the new US president, Donald J. He perceived that the participation in free trade agreements did not bring enormous benefits to the United States. Hence he established the "America First" policy in which the first priority is given to the US’s interests. Accordingly, President Donald Trump made shocking decisions such as withdrew the US from regional and international agreements and organizations like TPP; renegotiated NAFTA… For the China side, it is not deniable that the country maintains protectionism strongly.
For example, it subsidized industrial products from steel to solar panels to countries to win market share. It forced foreign companies to cooperate with domestic businesses and transfer technology. As a result, in January 2018, the US president imposed 2 tariffs on solar panels and washing machines originating from China. The next product in the taxable list is steel and aluminum, being a result of protecting national security.
In response, China has announced its retaliation policy by imposing tariffs on 128 US products ranging from wine to oranges. Literature review No one can predict when the trade tension between the world's top two economies would end, but if it continues to escalate, it will undoubtedly cause significant damage to the economies of both sides as well as of the world. In the interdependence between countries, in theory, the most severely affected countries are those whose economies depend mainly on exports. The escalating trade tension between the United States and China has had implications for many countries, including Vietnam.
Since 2016, there have been many scientific research projects and specialized journals that have studied the US- China trade war. They have different approaches, research scopes, and research purposes, creating a diverse database of this timely topic. Siby and Arunachalam (2018) provided an overview of the US-China trade imbalance and reasons that cause the US-China trade war. These reasons are unbalanced BOP, China’s intellectual property infringement, gaining an unfair advantage in exports by devaluing the Yuan… However, these reasons were all mentioned by the US when the president declared punishment for China.
The research also used World Bank’s data from 1992-2016 and an indicator in the international financial sector - Purchasing Power Parity to clarify them but from my point of view, there was no new statement in this paper. The authors indicated the effects of trade war but only at a general level. There is a key question that was still not discussed in the literature: How can we see the different effects of the trade war on different regions? Lê Quang Thuận et al. (2018) also explored source of trade war.
According to in their research, “Xu huong bao ho thuong mai tren the gioi va kien nghi doi voi Viet Nam”, trade war come from a trend of trade protectionism in the world. Most studies have relied on the US-China trade war but the authors did not jump on the bandwagon. They discussed trade wars in the past such as the tensions between Canada and the US, the 1930 Smoot- 3 Hawley Tariff which worsened the Great Depression… The paper took a creative approach and recommendations are proposed for all Vietnamese associations, government and enterprises. However, the effects of the US-China trade war on Vietnam was not clearly presented in the literature because the writers do not intend to analyze a particular event.
Therefore, this article will be more useful in academic orientation. Regarding to the US-China trade war, “Who is Paying for the Trade War with China?” by Zoller-Rydzek et al. (2018) demonstrated that it is Chinese exporters who were suffering the greatest share of the tariff burden. The paper used simple a microeconomic model, price elasticity of demand, to estimate the tariff incidence on a partial market, and then summarized that, “a 25% point increase in tariffs raises US consumer prices on all affected Chinese products by only 4.5% on average, while the producer price of Chinese firms declines by 20.
Additionally, the US can derive benefits from the trade tension. The country was not only able to minimize the negative impacts on US consumers and firms, through its strategic choice of Chinese products, but also to create substantial net welfare gains in the US. In short, Chine exporters is the loser in the US-China trade war. However, the current US economic situation showed the opposite.
The country has spent billions of dollars to support domestic businesses and US workers who suffering heavy losses from the trade war. From my perspective, this article is conducted to assess the theoretical damage of US tariffs to China and it showed personal support for Trump’s new policies, therefore the impacts of the trade war on the US and China were not assessed accurately. The report “Toan canh chien tranh thuong mai My-Trung” by Bảo Việt Securities Company (2018) consisted of these content: listing up-to-date events in the escalating trade tensions, giving an explanation for the US's decisions, analyzing the impact on the US, China economy by imposed products, and finally point out opportunities for other countries, including Vietnam. The highlight of this article is that it gave many explanations for the US’s strike.
Although the trade war based on protectionism will more or less bring damage to the economies of both sides, at least the US can curb China’s growth, showing that China's expansion is threatening the US's superpower position. In the content of positive impact, the writer provided relatively comprehensive judgments about many 4 products such as wooden furniture, beef, soybeans, electronic components… However, just like the title, this paper just aimed to provide an overview of the trade war and did not intend to analyze a specific country. Another study has narrowed the scope to analyze a particular economic region. The Economist Intelligence Unit (2018) in its research “Asia’s winners in the US-China trade war” not only gave a lot of detailed statements about the benefits of Asian countries but also analyzed by sectors: Information and communications technology products, Automotives and Apparel and readymade garments.
These sectors were selected for their outsized importance in US-China trade flows and their related political importance. From my perspective, the paper recognized the trade war as a big cake that everyone can have their piece, whether more or less. But it’s not. Taking advantages of the trade diversion is one of Asia countries’ benefits but it is not easy to gain market share.
No country had the same producibility as China neither in terms of volume nor integration of supply chains. Local businesses need time to build their respective production capacity.