How the looming US trade war and China’s rising labour costs are a boon to Vietnam’s economy
Although US-China trade tension could impair growth in Southeast Asia, the region is siphoning output away from China, where rising wages have driven up costs
The looming US-China trade war has boosted foreign investment in Vietnam, accelerating an already strong trend of foreign firms veering away from China and its rising costs and eyeing ventures in Southeast Asia.
Despite economists’ warnings that the escalating trade tensions between the world’s two largest economies could indirectly hurt growth in Southeast Asia, the region is still seen as a destination for foreign companies shifting production away from China, where rising wages have increased manufacturing costs.
US President Donald Trump’s intention to impose 25 per cent tariffs on US$34 billion of Chinese products on July 6, sparking a promise from China to retaliate on the same day with equivalent action on its US imports, has increased the climate of uncertainty and stock market volatility that has driven some foreign businesses away from China to Vietnam.
“This is an acceleration of a trend that has been ongoing,” said Adam McCarty, chief economist at Mekong Economics in Hanoi. “The [US-China] trade war has given it a little kick in the last few months, causing people to re-adjust their country risk strategies now that trade actions are ramping up.”
Foreign companies from Japan, South Korea, Hong Kong and mainland China are flocking to Vietnam, largely to diversify their investments, McCarty said. That is especially true in manufactured goods, where Vietnam’s cheaper costs make it more desirable than China.