“Do you wanna tariff Vietnam?”, a visibly incredulous Maria Bartiromo asked, interrupting Donald Trump during his breathless Wednesday call-in interview.
There was an extended pause.
Then, back came the voice on the other end of the line. “Well, we’re in discussions with Vietnam. Vietnam is almost – well, it’s much smaller than China – much – but it’s almost the single worst abuser of everybody”, Trump declared.
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For anyone who isn’t apprised of the situation, the “problem” (if that’s what you want to call it), is that Vietnamese exports to the US have exploded thanks in no small part to the tariffs on China. Specifically, imports from Vietnam surged 40.2% in the first three months of 2019, while imports from China plunged 14%. If things keep going like they’re going (which doesn’t seem likely, especially after Trump’s comments to Bartiromo), Vietnam could surpass France, India, Italy and the UK on the list of top importers to the US.
On a day when most Asian markets logged sizable gains on ostensible trade optimism, Vietnamese shares dove the most since March, falling 1.7%.
The benchmark is up nearly 6% for the year, but now sits at its lowest levels in months. “Some people are worried that Trump may put tariff on Vietnam’s goods”, a strategist at MBS Securities remarked.
Of course, if Trump goes after Vietnam and other countries which have benefited from import substitution efforts in the face of the crackdown on China, it will eliminate one of the avenues through which the impact of the trade war on inflation is mitigated. “Focusing on the most recent and largest round of tariffs on $200 billion worth of goods from China, we find evidence of significant increases in imports of tariff-affected goods from other countries, especially Taiwan, Vietnam, and South Korea”, Goldman wrote Wednesday, adding that “these three countries account for a total increase of $13.7 billion in tariff-impacted imports since September, or half of the $28.8 billion decline in imports from China in these categories”.
(Goldman)
Earlier this month, Nomura calculated that Vietnam grabbed orders worth nearly 8% of GDP in Q1 thanks to trade diversion on goods subjected to Trump’s tariffs.
When you ponder this, don’t forget that in the latest semi-annual report, Treasury added Vietnam to the list of major US trading partners who warrant monitoring for possible currency manipulation.
At the time, we called the addition of Vietnam to the watchlist “interesting” in light of the surge in imports during the first quarter of the year. Suffice to say this situation got a lot more “interesting” on Wednesday. If Trump figures out that a lot of the finished products Vietnam ships are made from Chinese materials and components, he won’t be pleased.
The Administration wants to bring manufacturing back to the US, which means restrictions on global trade to force the dismantling of global supply chains. “Success” will mean large increases in costs and prices, higher inflation, lower consumer demand, and lower profits. The beneficiaries will be Americans who want to work long hours doing repetitive low-skill work at low (by US standards) wages – which is not a large population. At the same time, the Administration wants to close down the labor supply through immigration. I’m getting the feeling that the “solution” is going to involve prison labor . . .