Vietnam to Test Trump on Signing Solo Trade Pacts
Vietnam will test U.S. President Donald Trump’s openness to one-on-one trade deals as it starts nudging Washington for an eventual agreement to replace its role in the defunct Trans Pacific Partnership (TPP).
Official media outlets in Vietnam say Prime Minister Nguyen Xuan Phuc told an American business delegation last week he was ready to visit the United States, and that he hoped to meet Trump for a discussion about trade, among other topics.
Vietnam depends heavily on factory exports, which are about 19 percent of a $200 billion economy.
“A trade agreement with the U.S., a very large market, would certainly bring some benefits, that’s clear,” said Marie Diron, senior vice president at Moody’s Investors Service in Singapore. “It would be about, kind of about anchoring these export markets with a trade agreement in place.”
Trump is not expected to prioritize free trade deals in the short term, analysts say, but he may someday consider them. Trade deals usually obligate signatories to cut tariffs on each other’s good or services.
US companies eye Vietnam market
Nguyen may have a chance at working out a trade deal with the United States because American firms selling products such as fast food, mobile phones and even insurance want more access to Vietnam’s fast-growing middle class.
More than one-third of the country’s roughly 93 million people will be middle class or higher by 2020, according to a Boston Consulting Group study.
“You would expect the direction of goods coming from Vietnam to the U.S. picking up more sharply than the other way around,” said Rahul Bajoria, a regional economist with Barclays in Singapore.
But, he said, “it could be the case there might be some pressure from the large [American] industrial manufacturers like the aircraft manufacturers or train companies. All of them may be much more interested in exporting to Vietnam.”
The United States is Vietnam’s top export market, giving the Asian country a trade surplus last year, with exports worth $38.1 billion and imports of $8.7 billion.
But in January, imports increased 14.6 percent, pointing to a possible soft spot in Vietnam for Western brands. American names such as Apple, Dell and Starbucks are easy to find in cities such as the financial center Ho Chi Minh City.
“The U.S. could export to Vietnam, to a market that’s growing so fast, with 90 plus million people who are very brand conscious, where Western brands have a very high reputation,” said Vojislav Milenkovic, analyst with the business advisory BDG Insights in Ho Chi Minh City.
“You can see this every day on the street. You can see that people are trying to save and to buy high-quality products from the foreign countries,” he said.
But Vietnamese consumers still earn just half of their counterparts in China, Diron said. “For some companies, that could be a hurdle,” she said. China’s market is also much larger that Vietnam’s.
End of TPP
Leaders in Hanoi had hoped the TPP would give them access to the U.S. market plus 10 other countries, including Japan. Trump withdrew the United States from the TPP in January, saying it would hurt the country.
Because of the size of the U.S. economy, Trump’s withdrawal made it effectively impossible for other countries to keep the TPP alive.
Trump said shortly after taking office he could consider one-on-one free trade agreements instead of regional ones.
Japanese Prime Minister Shinzo Abe has said he is open to the idea of a bilateral trade pact with the United States, and members of the U.S. Congress advocate an agreement with Britain.
In a phone call after his election in November, Trump told Nguyen he wanted to strengthen ties with Vietnam and that he was willing to meet in the United States.
In exchange for trade favors, Trump might ask Vietnam to support the U.S. presence in the South China Sea where the United States is trying to resist Chinese maritime expansion, said Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City.
Vietnam may need to wait out most of Trump’s current term before getting any trade deals, Bajoria cautioned.
Any deal takes time to negotiate, he said, and the U.S. government may try first to build its relations with China, the world’s number two economy after the United States. “I don’t think there’s scope for an FTA over the next 12 months,” Bajoria said.
Since Trump was elected, Vietnamese leaders afraid that the TPP would die began looking instead to other trade deals.
An agreement reached with the European Union in 2015 is due to take effect next year if it clears hurdles in the European bloc’s parliament.
China is also keen to bolster trade ties, but Vietnam hopes to avoid dependence on the long-time political rival that’s known for unloading cheap mass-produced goods in Vietnam at prices lower than what local companies can charge.