THE IMPOSITION of aggressive US tariffs has been greeted with a surplus of strong reactions, almost none of them good. Bewilderment and dismay are among the more sanitized responses from trading partners. To their great disappointment, Washington鈥檚 friends haven鈥檛 been spared, even those with whom it trades on very favorable terms. The investor class has given President Donald Trump鈥檚 salvo, which significantly raises the chances of a , a scornful rejoinder.
In the case of a few countries, let鈥檚 consider an additional response 鈥 one of sympathy. Vietnam ought to be near the top of the . It came late to the Southeast Asian export machine, but became one of the world鈥檚 fastest-growing economies, and ties with the US have steadily warmed since the American-backed regime in the South fell to Communist forces 50 years ago. While still poor relative to Singapore, Malaysia, and Thailand, Vietnam鈥檚 leaders adopted large parts of the development model that proved a boon to much of the region. The government eased curbs on investment, welcomed supply chains, was attentive to infrastructure needs, and took steps to combat corruption. When the US sought to isolate China, the nation became a popular destination for manufacturing giants wanting an inexpensive location and a skilled labor force. It was a darling of the 鈥淐hina Plus One鈥 crowd.
Vietnam was, as a result, often depicted as the closest thing to a . That label can鈥檛 be applied after Wednesday. With great achievement came considerable danger. The charges leveled at China in prior years began to accumulate: The central bank kept its currency , the one-party state was opaque in its decision-making, and swathes of the economy remained off-limits to foreign money.
The levy of 46% was among the steepest handed down by Trump during the 鈥淟iberation Day鈥 ceremony at the White House. There鈥檚 tragedy here. The penalties will deal a heavy blow to the Vietnamese economy as a whole, and to the middle-class of millions. Irony is also present. While certainly not flawless, the country did a lot right. It correctly identified the US market as the route to higher living standards and did its best to cater to the corporations that thought they read the tea leaves correctly by loosening dependence on China. They got hit with crippling tariffs, regardless.
The mistake may have been to be too successful. Factories certainly churned out a lot of goods that American consumers desire. More than one-quarter of Vietnam鈥檚 gross domestic product depends on shipments to the US, according to Bloomberg Economics. Exports overall are equal to about 90% of its economy. Many textile and apparel companies are at high risk of failure, reckons the main industry organization in Ho Chi Minh City. About half of all Nike, Inc. and Adidas AG shoes are made in the country. Uniqlo owner Fast Retailing Co. and Hennes & Mauritz AB also count it as one of their . Vietnam鈥檚 export campaign goes beyond textiles and footwear, as lucrative as these plays have been. Intel Corp. operates a chip assembly and test manufacturing facility. Apple, Inc. was also attracted to set up an operation.
For all the allure of Vietnam for Western companies, Beijing also found it irresistible. US officials have chafed at the Asian giant鈥檚 investment there, which they see as a thinly veiled effort to muscle into supply chains that have nominally decamped from China. During a 2020 visit, Trump鈥檚 then-national security adviser, Robert O鈥橞rien, urged Hanoi to combat the rerouting of Chinese exports. Mexico, which has also witnessed an increase in Chinese interest, has similarly been pressured by DC to restrict overtures.
Vietnam鈥檚 economic growth target of at least 8% this year now looks implausible, assuming Trump鈥檚 duties stay. (Hanoi asked the US to put the levies on hold and .) A percentage point or two off the pace of expansion may be the least of officials鈥 worries if an entire approach to attaining prosperity is now open to question. If the White House鈥檚 duties extract a heavy cost, part of the calamity for Vietnam is that something like this has been in the cards for a while. The trade surplus with the US has widened significantly.
In the president鈥檚 first term, he went from lauding Vietnam as a worthy template for development to decrying it as one of the of the trading system. In late 2020, the Treasury Department designated the country a currency manipulator, and a panel convened by the US Trade Representative heard about not only FX shenanigans, but the danger posed by cheap imports. There was pushback from firms that had responded to calls to shift production from China. The sentiment was along the lines of: Are we supposed to uproot again, and, if so, where? Trump appears to care little for such practicalities.
Southeast Asia didn鈥檛 fare well on what Trump claimed was one of the most important days in history. Cambodia, Thailand, Malaysia, Indonesia, and the Philippines were all punished, though for what remains unclear. Singapore, which suffered the minimum tariff of 10%, fared less badly than its neighbors. Still, Vietnam鈥檚 treatment stands out.
To assert that Hanoi should have seen severe measures coming is a reasonable observation. Leaders did recognize some vulnerability; days earlier, Vietnam slashed tariffs on a range of imports. That doesn鈥檛 make what was meted out by the White House fair. The nation jumped through the right hoops over the years and got hobbled. Every textbook has its use-by date. And America has let it down, again.
BLOOMBERG OPINION
