China May Avoid US Tariffs By Exporting Via Vietnam

Trade & Policy

China May Avoid US Tariffs By Exporting Via Vietnam

Vietnam could suffer collateral damage if Chinese businesses use made-in-Vietnam labels to avoid US tariffs, experts warn.

Economist Vu Dinh Anh said it is "highly possible" that Chinese businesses would seek to export their goods through Vietnam to the US amid the trade war between the world's two largest economies. One way they can do this is exporting their products to Vietnam and asking a Vietnamese business to label them as "Made in Vietnam," he said. They can also set up factories in Vietnam and manufacture products with materials imported from China, he added.

"This will result in bad consequences for Vietnam as the US might impose the same tariffs on Vietnam as it did on China." Vietnam's textile and footwear industry insiders expressed the same concern. Pham Xuan Hong, chairman of the HCMC Association of Garment, Textile, Embroidery and Knitting, said it is possible Chinese garment products would be labeled as made in Vietnam and exported to the US.

"We propose that the government control this situation by tracing products' origin and severely penalising violations. Otherwise the whole industry will have to suffer consequences," he warned.

Diep Thanh Kiet, vice chairman of the Vietnam Leather, Footwear and Handbag Association (LEFASO), said there is a "very high" possibility that Chinese bags would be exported to the US through Vietnam. If Chinese bag makers want to export to the US, they can set up a factory in Vietnam to facilitate the exports, and this can be easily done with a budget of just US$ 200,000, he said.

This has happened before with steel. In May this year the US slapped anti-dumping duties of 199.76% and countervailing duties of 256.44% on imports of cold-rolled steel produced in Vietnam using Chinese-origin substrate. Anh said Vietnam should not repeat this mistake twice since there is a possibility that the US would conduct investigations if it has any suspicion about product origin.

A chance to thrive

But there are opportunities for Vietnamese consumer goods exports amid the trade war. About 27% of Chinese goods set to be affected by the new tariffs are consumer goods, and Vietnam exports many similar items to the US, said Can Van Luc, chief economist with the Bank of Investment and Development of Vietnam (BIDV). "The escalating trade war will create opportunities for Vietnamese exporters of consumer goods to expand their market share in the US," Luc said.

A recent report by Bao Viet Securities (BVSC) said footwear and textile products have a "great opportunity" to grab US market share from China. Since the Chinese yuan has weakened against the US dollar and dong, Vietnamese businesses would be able to import garment, leather and other materials cheaper, and this would result in more competitive prices in the US, the report said. The US has been Vietnam's largest trading partner this year, with US$ 30.2 billion in turnover in the first eight months, according to the Ministry of Planning and Investment.