Risks emerge as Vietnamese exports enter US tariff crosshairs

Illustrative photo.

The US Commerce department, in three preliminary circumvention rulings, on July 3 imposed import duties of more than 400 per cent on steel products produced in Vietnam using material from the Republic of Korea (RoK) and Taiwan (China).

The move was aimed at punishing RoK and Taiwanese businesses which sought to circumvent the US’s steel import tariffs by rerouting their products through Vietnam for minor processing.

Analysts from Fitch Solutions, a macro-research subsidiary of Fitch Group, believe that the impact of these tariffs on Vietnam’s exports and economic growth outlook will be low as steel and iron products exported to the US only account for 0.4 per cent of Vietnam’s total exports.

However, this move points out that the US would keep an eye on its trade deficit with Vietnam, which stood at US$41.6 billion in 2018 - the sixth largest, behind China, Mexico, Japan, Germany, and Ireland.

Fitch Solutions quoted media reports as saying that Chinese exporters have attempted to circumvent the US’s tariffs with fake "made in Vietnam" labels on their products. As such, the US could impose similar import tariffs on other Vietnamese exports which are allegedly just goods rerouted from China to avoid the US trade tariffs on Chinese goods, the research entity said. 

Tariffs being implemented on US imports of Vietnamese goods would pose a significant drag on the Vietnamese manufacturing sector, given that the US accounts for 18.5 per cent of Vietnam’s total export demand.

Vietnam’s real GDP growth to pick up to 6.8 per cent in 2020, from a Fitch Solutions forecast of 6.5 per cent in 2019, supported by an ongoing structural shift in low-end manufacturing out of China and the signing of the EU - Vietnam Free Trade Agreement (EVFTA) on June 30, both of which will bolster Vietnam’s export outlook.