In 2018, the U.S. imposed an additional 25% tariffs on Chinese goods. To avoid tariffs, many importers have increased their purchases from Southeastern Asia countries. In the US-China trade war, Vietnam has emerged as the biggest winner, becoming the fastest-growing economy in exports to the U.S. At this rate, will Vietnam overtake China as the US’s largest importer?

From January to September of 2021, China’s exports to the U.S. has increased by 18% in 2019, while Vietnam’s has drastically risen by 74%.

Vietnam’s exports to the United States are less than 15% of China’s in 2019, and this proportion is expected to rise to 22% in 2021, in just two years. With the increase of production costs in China and the latest implementation of environmental protection, many manufacturers have set up factories in Vietnam or emigrated to Vietnam. All in all, the tariffs imposed in 2018 have undoubtedly accelerated the process.

In terms of the composition of exporting goods to the U.S., China and Vietnam have their own distinctive features. In 2019, China’s top 10 exports to the U.S. account for 70% of total exports. However, the figure slumps to 50% in 2021, indicating that the volume of the top 10 has mostly fallen or slightly increased, with the exception of textiles and paper products. Conversely, the remaining categories of exports to the U.S. have become more evenly distributed, rather than relying on a few major categories.

Source: US Census Bureau

On the other hand, Vietnam’s top 10 exports to the U.S. account for 80% of total exports in 2019, and the proportion falls slightly to 73% in 2021, implying that traditional industries such as furniture, appliances, clothing, and footwear continue to provide the biggest impetus for the rapid growth of Vietnam’s total exports to the US. Unless the U.S. lifts the tariffs on China, Vietnam will reap the benefits of the policy.

Source: US Census Bureau

There is no doubt that Vietnam has benefited the most since 2018, when the Trump administration imposed an additional 25% tariff on Chinese goods.

Vietnam continues to make steady progress in traditional superior products, with volume increasing from less than one-seventh of China’s in 2019 to one-fifth in 2021. Besides, the commodities of exports to the U.S. have expanded to include more categories.    

Nevertheless, Vietnam’s capacity has started to saturate, and the cost of production has risen rapidly. Even if China’s power curtailment continues into the fourth quarter, the possibility of orders flowing to Vietnam remains slight. Affected by the epidemic, Vietnam’s GDP even suffers from negative growth in the third quarter. The factories have a large backlog of orders and cannot afford to accept new orders. 

In the long run, Vietnam’s attractiveness will gradually decline as trade tensions between the US and China ease and tariffs are eliminated.

After experiencing the tariff turmoil in 2018 and the epidemic in 2021, importers may find that decentralizing procurement channels and combining offshoring, nearshoring, and onshoring may be the best solution to the chaos.

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