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Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

In 2018, disbursement of FDI projects in Vietnam reached a record high of USD 19.1 billion, showing the high confidence of foreign investors in Vietnam’s business and investment environments. This is an increase of 9.1 percent year-on-year amid global concerns over the tension caused by the US China Trade War. Additionally, the rapid growth of both privately and state run enterprises such as Vingroup or Viettel is an indication of Vietnam’s economy prosperity and the fact that the country’s business environment is capable of nourishing large corporations of global scale.

However, as tensions over the Trade War continue to escalate in 2019, uncertainly over the status of the global manufacturing sector has continued to plague the industry and much attention has been focused on Vietnam due to the country’s status as an emerging manufacturing hub. Currently, the Trump administration has imposed tariffs on USD 250 billion worth of Chinese imports while China has retaliated by imposing tariffs on a cumulative value of USD 110 billion worth of US imports.

In short-term, Vietnam is projected to capture some of China’s global market share in labour-intensive manufacturing, although, in the long-term it is uncertain if Vietnam will continue to benefit from the displacement of manufacturing from China. This is because, Vietnam could face the risk of trade frauds as China looks to route US-bound products through the country to evade existing tariffs at an increasing pace. Furthermore, there is also the risk of Chinese products saturating the Vietnamese market, resulting in increased competition with domestic producers.

Thus, as the trade war drags on, experts have advised Vietnam to develop a new development strategy to evade potential risks. This is also due to the fact that global investors are starting to withdraw their investments from emerging markets, including Vietnam.

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Vietnam To Work On Industry 4.0 Implementation

Vietnam To Work On Industry 4.0 Implementation

According to Tran Hong Quang, director of the National Center for Socio-Economic Information and Forecast (NCIF), Vietnam has to shift towards an economic model that is more suited for Industry 4.0 due to a weakening of its current comparative advantage in natural resources and labour-intensive production. This is a view that is further reinforced by Luong Van Khoi, NCIF’s Vice Director, who said that Vietnam should focus on revising its economic model as part of the 2016 to 2020 economic reforms and aim towards improved social resources management, higher productivity and national competitiveness.

During this process, it is also essential for the country to identify sectors that have high potential and include them in the new FDI strategy. Citing a OECD research paper in which 66 million workers are projected to be replaced by machines in developing countries, Khoi further added that a number of jobs could potentially be replaced by robots such as factory work and industries such as manufacturing and processing risk being automated and will possess a lowered need for manpower.

In fact by 2025, about 42.8 million employees in Vietnam would be directly impacted by industry 4.0 and around 31 million will have to be retrained or change their jobs, Khoi continued.

Despite this, Le Huy Khoi, Head of the Industrial Policies Strategies Institute’s Study and Market Forecast Division under the Ministry of Industry and Trade, has commented that Industry 4.0 would open up more opportunities for Vietnam to grow its trade and industry sector and will encourage companies to improve their production methods, which will lead to cost reduction and improved productivity. Although, currently, awareness of industry 4.0 is still low among the business community and the technical infrastructure and technological applications have not been met. This was evidenced in a survey of 2,000 enterprises by Hanoi’s Small and Medium Enterprises Association, whereby 79 percent of the respondents indicated that they have not prepared for Industry 4.0, while another 55 percent are still attaining information regarding Industry 4.0 and 19 percent are currently working on Industry 4.0 plans. And of those surveyed, only 12 percent are executing Industry 4.0 plans.

To address those issues, Khoi has recommended that the government focus on education and work towards creating an awareness of Industry 4.0 through the dissemination of information in the political system, enterprises, business associations, research institutes and universities. Government agencies can also facilitate digital economy development, Industry 4.0 participation and application and the liberalisation of investment.

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Manufacturing And Processing To Be Driving Force For Vietnam’s 2018 Trade Surplus

Manufacturing And Processing To Be Driving Force For Vietnam’s 2018 Trade Surplus

In accordance to Vietnam’s Cong Thuong newspaper, the country’s export revenues in 2018 is projected to reach a value of US$237 – 239 billion with an expected 10 – 12 percent year on year increment, while FDI investments reached US$127.84 billion, increasing by 14.6 percent. This is mainly attributed to the growth in the manufacturing and processing industry which constitutes a majority of the country’s exports, with smartphones comprising the largest export pool.

In March, Vietnam’s export turnover reached a high of over US$21 billion while in August, export turnover peaked at US$23.48 billion. Of which, US$5 billion were from smart phone exports over those two months.

The local government is also looking to reduce import tariffs to 0 percent due to free trade agreement commitments and this has increased the competitiveness of Vietnamese products, especially when coupled with the improvements in the local business environment. Also, while the US-China trade war has yet to be resolved, the Ministry of Industry And Trade will be monitoring it to reduce its impacts on Vietnam’s trade activities.

On the whole, Vietnam witnessed a trade surplus of US$5.39 billion in the January – September period, of which the FDI sector contributed for a trade surplus of US$23.65 billion, and domestic enterprises constituted a trade deficit of US$18.26 billion.

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