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South East Asia - Vietnam vulnerable to U.S. restrictive trade stance
07 December 2016

A more restrictive trade stance by a Trump administration is likely to hurt exports and investment in a country like Vietnam, HSBC said in a report released on December 1.

Britain’s vote to leave the European Union triggered economic and political changes. And now Donald J. Trump’s stunning win in the U.S. election is raising risks of trade protectionism.

Although it is too early to know about the specific policies Trump will pursue, if he does what he promised during the presidential campaign, there would be cause to worry for Asia.

A more restrictive trade stance by the U.S. is likely to hurt exports and investment in a country like Vietnam, where the U.S. accounts for about a fifth of its exports.

The U.S. and China are Vietnam’s largest trading partners. Last year, America accounted for 21% of Vietnam’s exports and China 10%.

Therefore, if America begins to throttle back imports, Vietnam’s exports would be hurt. China could also feel the brunt of an American restrictive trade stance. If that happens, Chinese demand for Vietnamese imports might decrease as well, especially for components used for re-exports from China to America.

The indirect effects of more restrictive U.S. trade policy could thus cause Vietnam’s exports to slow down.

HSBC’s report said the current state of affairs underscores the need for reform. “We think that Vietnam rightly remains committed to its structural reform agenda. The National Assembly adopted three reform targets for 2016-2020, relating to public investment, State-owned enterprises and financial institutions. Financial institutions will be strengthened by speeding up bad debt divestment and having at least 12 to 15 commercial banks in compliance with Basel II standards,” the HSBC Global Research team said.

“We believe that if pursued properly, the gains from these reforms will have far reaching consequences in strengthening the fundamentals of the economy. In turn, the economy should find itself less vulnerable to external shocks.”

According to the General Department of Customs, America is a key market for Vietnam’s major export items like apparel, footwear, seafood and wood. In January-October, Vietnam earned some USD19.68 billion from outbound sales of textile-garment products, up 4.1% from a year earlier, with exports to America making up over 48% of the total.

America is Vietnam’s biggest importer of seafood and wood with respective export revenues of USD1.2 billion and USD2.52 billion in the ten-month period, accounting for 21% and 50% of Vietnam’s total.

Information courtesy of The Saigon Times