Tariffs bring both risks and opportunities to Vietnam: US professor

The tariff policies contain inconsistencies

U.S. President Donald Trump does not like trade deficits, especially goods trade deficits, even though the services sector accounts for nearly 90 percent of the U.S. economy. He wants to see manufacturing return to America.

The decline of U.S. manufacturing is partly due to the 'unfair' trade practices President Trump often refers to. However, a significant factor behind this is the U.S. dollar being a reserve currency.

Central banks and commercial banks purchase U.S. Treasury bonds to ensure safety and liquidity, which leads to capital inflows into the U.S. These capital inflows (along with investments in other U.S. assets) help finance the U.S. deficits.

The influx of capital into the U.S. strengthens the dollar, making imported goods cheaper for American consumers while making U.S. exports more expensive in other markets due to exchange rate differences.

Therefore, if the U.S. dollar were no longer a reserve currency, most trade deficits would disappear. However, the U.S. would then need to maintain high interest rates and low fiscal deficits. This could slow economic growth.

And, given the current instability, it will take time for companies to decide if tariffs will stay in place or not. Even if they thought they would, building factories, developing an ecosystem of suppliers, and training labor would take several years. In the meantime, people are paying more for imports, including exporters.

So, I believe there are still many problems and contradictions in President Trump's current trade approach.

Improving internal forces and reaching more markets

Regarding the tariff negotiations between Vietnam and the U.S., I believe the more flexible and realistic officials in the U.S. administration are involved in the talks.

It is impossible to know how the negotiations will play out, but I expect they will be much less extreme than the 46-percent level imposed on Vietnam. If Vietnam could be treated the same as Indonesia, India, Bangladesh, etc., with a 10-15-percent tariff for all, it would slow but not cripple your export growth.

I think Vietnam should diversify its markets and reduce dependence on both China (for imports) and the U.S. (for exports), though that is not easy.

On the other hand, Vietnam is gradually moving beyond being a low-wage labor country. The key solution here is to pursue alternative export advantages: improving quality control, scaling up production, and enhancing on-time delivery capabilities among Vietnamese firms serving foreign investors.

Even if exports grow slowly, getting a bigger piece of the value added would allow domestic manufacturing and GDP growth to proceed. It would also make Vietnamese firms more capable, resilient, and agile.

A real trade war between China and the U.S. would be bad for them and the global economy. The less the U.S. imports from China, the more China will seek to export to other countries. This could result in a tsunami of Chinese exports at low prices which cripple local firms that are trying to compete. It would be a chaotic situation with few rules observed, more like the 1930's.

An alternative is that countries that do not super-subsidize or have huge economies of scale band together to have free trade with high barriers against countries that over-protect their markets or make their exports super-cheap.

That is, a trading system in which both the U.S. and China are sidelined, at least as they now are. I do not think this is likely. Both countries will, I think, negotiate.

For example, President Trump recently announced tariff exemptions on some imported electronics, including items from China. This is happening in the context of ongoing negotiations. And predicting what happens next is extremely difficult.