Vietnam has seen an influx of economic activity as companies seek to avoid tariffs on Chinese imports. U.S. companies that do business overseas are looking to diversify their business because of uncertainty about the U.S. relationship with China.
Vietnam’s exports to the United States were 35% higher in the first nine months of 2019 compared to the first nine months in 2018. Americans are buying more from Vietnam because of the tariffs that Trump has placed on China. When it comes to cheaply manufacturing simple products, Vietnam has many of the same advantages as China. There’s plenty of cheap labor, and there are plenty of ports on the Pacific.
So when U.S. importers face taxes for importing from China, they turn instead to Vietnam. For importers and their customers, this flexibility is very beneficial. It mitigates the upward price pressure that Trump’s tariffs impose, which means China bears the cost of losing the business, and Americans see smaller price hikes on the goods being imported — for example, electronics.
One inefficiency is that Vietnam does not have supply chains or manufacturing capacity or even a workforce set up to handle the influx of orders diverted from China. Surely, these things are now ramping up, but investors will be cautious before making capital expenditures because the flood of orders from the U.S. is due to a temporary tariff that Trump could lift in an instant. On the other hand, it’s not only multinational companies that are finding Vietnam desirable, but homegrown companies too.
