Labourers work at Hung Viet garment export factory in Hung Yen province, Vietnam December 30, 2020. REUTERS/Kham/File Photo
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 sanitised responses from trading partners. To their great disappointment, Washington’s friends haven’t been spared, even those with whom it trades on very favourable terms.
The investor class has given 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’s consider an additional response – one of sympathy. Vietnam ought to be near the top of the condolence list.
It came late to the South-East Asian export machine, but became one of the world’s fastest-growing economies, and ties with the United States have steadily warmed.
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 United States sought to isolate China, the nation became a popular destination for manufacturing giants wanting an inexpensive location and a skilled labour 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 can’t be applied after last Wednesday. With great achievement came considerable danger.
The charges levelled at China in prior years began to accumulate: The central bank kept its currency artificially weak, the one-party state was opaque in its decision-making and swathes of the economy remained off-limits to foreign money.
The levy of 46% was among the steepest imposed by Trump during the “Liberation Day” ceremony at the White House.
There’s 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 may 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 gross domestic product depends on shipments to the United States, according to Bloomberg Economics. Exports overall are equal to about 90% of its economy.
Many textile and apparel companies are at high risk of failure, reckons the main industry organisation in Ho Chi Minh City.
The shortfall grew dramatically after Trump was first elected in 2016. 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.
Vietnam’s economic growth target of at least 8% this year now looks implausible, assuming Trump’s duties stay. (Hanoi asked the United States to put the levies on hold and engage in negotiations.)
A percentage point or two off the pace of expansion may be the least of officials’ worries if an entire approach to attaining prosperity is now open to question.
Cambodia, Thailand, Malaysia, Indonesia and the Philippines were all punished, though for what remains unclear. Singapore, which suffered the minimum tariff of 10%, fared less badly than its neighbours.
Still, Vietnam’s treatment stands out.
To assert that Hanoi should have seen severe measures coming is a reasonable observation.
Leaders did recognise some vulnerability; days earlier, Vietnam slashed tariffs on a range of imports. That doesn’t 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 America has let it down, again. — Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. The views expressed here are the writer’s own.
