Key points

• Vietnam has emerged as a large beneficiary amid the U.S.-China trade deal. A new deal is solidifying Hanoi’s privileged position.
• Vietnam and the European Union on Sunday inked a first-of-its-kind trade deal that will eliminate 99% of tariffs on goods imported to the bloc.
• The U.S. government is signaling that it could be aiming to exact trade concessions out of Hanoi.

Vietnam teams up with EU

• Vietnam and the European Union on Sunday inked a first-of-its-kind trade deal that will eliminate 99% of tariffs on goods imported to the bloc.
• As the ongoing U.S.-China tariff battle upends global trade, many countries are worried about suffering ill effects. The EU-Vietnam deal demonstrates, however, that Hanoi is poised to come out as one of the great beneficiaries.
• The new deal is likely to provide economic cushion for Vietnam. The EVFTA is described as “the most ambitious free trade deal ever concluded with a developing country.”, which would boost EU exports to Vietnam by 15.28% and those from Vietnam to the EU by 20.0% by 2020.
• Vietnam is currently the EU’s 16th largest trade partner and the trading bloc’s second-largest trading partner among SEA countries. In 2018, the country exported $42.5 billion worth to the EU and imported $13.8 billion. It’s predicted that “over the implementation period, Vietnam’s economic growth will be around 7% to 8% higher than if the (new trade pact) had never entered in force.”

• “Vietnam is taking extraordinary steps to accelerate economic growth by making difficult domestic reforms and actively seeking new markets”. The country now has “preferential access to the EU, Canada, and Mexico”, therefore is expected “further growth in Vietnamese exports to these economies.”

• While the new trade deal apparently represents a solid victory for Vietnamese exporters, it also signals that Europe is serious about diversifying its trade relationships. Looking at the bigger picture, SEA is the EU’s third-largest trading partner after the U.S. and China, so any free trade advancements in the region are significant for the bloc.

Amid the US-China trade war

• Hanoi has come out on top as the largest beneficiary of diversions resulting from the trade tensions between Washington and Beijing. Vietnam was estimated to gain a 7.9% increase in its GDP from new business seeking alternatives amid the ongoing tariff battle.
• Specifically, products that have experienced the greatest increase in exports from Vietnam are phone parts, furniture, and automatic data process machines, all of which are traditionally exported from China to the US.

• The increase in Vietnamese exports can also be largely attributed to free trade agreements the country has strategically entered into over the last few years, including the multinational CPTPP.

Hanoi’s American trade ties

• Storm clouds may be gathering, however. A surging U.S. trade deficit with Vietnam means Vietnam should be worried there “is clearly a risk for the overall relationship, given President Trump’s perspective on bilateral trade balances”.
• The U.S. Commerce Department announced that it will impose duties of up to 456% on certain steel imported from Vietnam, specifically referring to steel products that are made in South Korea or Taiwan and then shipped to Vietnam for minor processing and final exportation to the United States.
• In fact, Trump recently upped the rhetoric on Hanoi, telling that “Vietnam is almost the single worst — that’s much smaller than China, much — but it’s almost the single worst abuser of everybody.”

Content source: Shao. G. (2019) Trump threatened Hanoi on trade, but Vietnam just teamed up with the EU on a big new deal. CNBC. Available from: https://www.cnbc.com/2019/07/04/eu-signs-new-trade-deal-with-vietnam-as-hanoi-benefits-amid-trade-war.html [Accessed 17 July 2019]