• The trade war. Raw numbers show the total size of US tariffs applied exclusively to China is currently $US250 billion; from China to the US, $US110 billion. The effect on impacted sectors is enormous but the damage extends well into the broader global economy
The US has traditionally been a major trading partner of China, with around 19 per cent of the Asian giant’s total exports going to the States.
Import tariffs imposed by US President Donald Trump on 50 per cent of goods imported from China and the retaliatory measures by Chinese President Xi Jinping has increased the costs of exporting products from China to the US.
The concern over a prolonged trade war could accelerate companies’ decision to explore alternative manufacturing bses and diversify away from China to lower-cost countries such as Vietnam. Vietnam could serve as a legitimate alternative manufacturing base to China in the future.
The country has already become a major exporter of textiles, electronic goods and footwear, among other items, with one in ten of the world’s smartphones produced in Vietnam.
As far back as 2017, the United States’ Fashion Industry Association noted the sourcing model in the sector was shifting from a ‘China Plus Many’ model to a ‘China Plus Vietnam Plus Many’ one.
Increasing trade liberalisation, deregulation, lowered costs of doing business and investments in human capital have contributed to the growing attractiveness of Vietnam as a manufacturing hub. Favourable factors include:
• Low labour costs & high productivity, Manufacturing wages in China rose from $US2 an hour in 2010 to $US3.9 an hour in 2016. This compares to $US1 and hour to $US1.4 and hour in Vietnam (although it should be noted there are significant wage gaps between central and south Vietnam).