The Trump Factor
Will a Trump administration have a positive or negative
impact on Vietnam?
Photo Source: East Asia Forum, December 2, 2024
The News
For only the second time in the history of United States of America, an
incumbent presidential candidate who lost re-election came back to
win a second term as US president. Grover Cleveland, the 22nd US
President, won in 1884, lost in 1888, and then came back to win in
1892. The second person to accomplish this feat is Donald Trump who
won in 2016, lost in 2020, and then won in 2024. Moreover, he won in
2024 with a voter mandate that he did not have in his 2016 election in
which he won the Electoral College, but lost the popular vote. In 2024,
he won both the Electoral College and the popular vote.
The reasons why he won are extensive, controversial, highly political,
confusing (to this American voter), and certainly not the purpose of
the Leveraging VARS newsletter. However, it is useful to highlight
two factors in Trump’s election victory that may become relevant to
Vietnam in the future. First, he tapped into an unmet need and
grievance amongst a substantial number of American voters for
“changing the system.” There are a lot of American workers and
families who feel left behind in a globalized world and Trump spoke to
them. Second, Trump campaigned heavily to bring back the
manufacturing jobs that had gone abroad. This ‘on-shoring’ rhetoric
has been popular in many countries around the world. Without specific
details, Trump promised to bring back jobs from China, Mexico, and
other countries. This resonated well with a good portion of the
electorate. He also effectively used immigration and crime as tools to
press home these two points. Finally, he somehow made a promise of
increased tariffs on imported goods sound like a policy that would
accomplish both the first and second objectives noted above rather
than being a sales tax on imported goods that Americans would end up
paying for.
Beginning on January 20 of this year, American voters will find out how
well or how poorly he can accomplish any of the promises and claims
he made. Overall, he has a voter mandate with a Republican-controlled
Senate and a slim Republican lead in the House of Representatives.
However, the American system is geared towards accountability. The
elections are set up to ask voters if they are satisfied with their
leaders. The first test Trump will face is in just two years with the mid-
term elections (the elections between the presidential elections). In
2026, he could increase/decrease/lose his Republican advantage in the
US Senate and/or the House of Representatives.
Within these two years, some of the questions (with a focus on those
most relevant to Vietnam) that might arise include: (1) Have American
manufacturers who left the United States to set up operations in
Mexico and other countries come back home to manufacture in
America with American workers and much higher labor costs? (2) Have
the proposed tariffs on imported goods from all the countries in the
world, but especially from China, been paid for by the manufacturing
country and not the American consumer? (3) Did the Trump plan to
"change the system" including trade policy and rounding up
immigrants succeed and therefore lead to a more secure and
prosperous life for Americans?
We’ll see.
Current Context
On the 4th day of the first Trump Administration in 2017, Trump pulled
the United States out of the Trans-Pacific Partnership (TPP) agreement
which had taken more than 10 years to negotiate. Among other
sentiments, this was seemingly a statement of his attitude towards free
trade which is crucial for Vietnam’s developments. Vietnam is a TPP
member (now called the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership or CPTPP) and has negotiated 15 bilateral
trade agreements around the world. Free trade is and has been central
to Vietnam’s development goals. China was not and is not a member of
the TPP or CPTPP so it cannot be argued that Trump’s decision was a
reaction to China’s trade surplus with the USA. In just four days, he
negated 10 years of work on a comprehensive free trade agreement.
What will Trump do on the issue of free trade within the first week this
time around? How will any policy changes on trade impact Vietnam
which has relied on free trade for its economic growth?
There are some differences between 2017 and 2025. First, Trump did
not expect to win in 2016. Therefore, he was probably not prepared in
terms of policies and a cabinet. Second, his 2016 campaign was mostly
about threats and grievances while in 2024 it was more focused on
retribution, immigration, inflation, and a strong America First
philosophy. Third, he hired and fired a host of cabinet members in his
first term. Perhaps this time around he will be able to find people who
he can work with more effectively and/or agree with and believe in his
vision for America and the world. This would include a shared vision on
global free trade.
In our opinion, one of the key indicators on this issue will be who he
chooses to be in his cabinet. Specifically, who will he choose the run
the Office of the United States Trade Representative (USTR) and his
choice for Secretary of the Department of Commerce? These two
individuals will have the most day-to-day contact on trade policy. As of
this writing, Trump has selected Howard Lutnick who is the CEO of
Cantor Fitzgerald as his Department of Commerce nominee. Lutnick is
a Wall Street billionaire and was a prominent supporter and fund
raiser for the Trump campaign. For the USTR position, he has
nominated Jamieson Greer who was the Chief of Staff to the former
USTR head Robert Lighthizer from 2017 to 2020. These two
nominations must be approved by the US Senate.
Among other duties, these two individuals will be tasked with pursuing,
ignoring, or modifying the Trump campaign pledge to place tariffs on a
range of countries. Recently, Trump announced (see graph and box
story below) sweeping tariffs against China, Mexico, and Canada. The
conventional wisdom has generally been that Trump’s trade fight was
with China and thus increased tariffs on Chinese imports fit this
argument. Mexico and certainly not Canada were never really a part of
this narrative. The finger pointing at Mexico and Canada was related to
immigration and the illegal flow of fentanyl, not trade.
There are a few positive tipping points for Vietnam. First, Vietnam is
not part of the immigration issue. There are around 22,000 Vietnamese
students studying in the USA, but they are not part of the debate.
Second, there is no evidence that Vietnam portrays a trade or security
threat either with its imports (such as fentanyl crossing the US-Mexico
border) or some kind of military or technology threat. Third, Vietnam
has a significant trade surplus with the USA, but these are with
products that American manufacturers mostly no longer make. Lastly
and perhaps most importantly in terms of trade and tariffs, the
American consumer has become used to low prices for an extensive
range of goods. For the lack of a better word, we call it the “Walmart
effect.” This means low prices for normal household goods. These low-
priced goods must be manufactured in nations like Vietnam that have
the labor force and the labor rates to produce such goods cheaply.
Suddenly slapping a 25 percent tariff on these goods would likely
impact the mid-term elections in 2026. It would be the same as
inflation, but for a different reason. This would be an illogical move,
but so, too, was pulling the USA out of TPP just four days into his first
administration.
Graph Source: VARS Lecture Series
Future Impact
So what does all this rhetoric mean for the Vietnam? When a future
President Trump starts railing on and on about trade deficits, should
Vietnamese manufacturers be nervous? Does he actually believe that
tariffs are NOT paid for by the American consumer? Was it all just
politics in order to get elected?
One popular belief is that Trump’s fight with China will benefit
Vietnam because more manufacturers will leave China and set up in
Vietnam because of the trade war, i.e., they want to avoid increased
tariffs. There are a few points that must be made about this argument.
First, the migration of manufacturers from China to Vietnam began
well before Trump’s first administration in 2016. It’s been ongoing for
at least 10 years. Second, the migration trend might pick up speed, but
not necessarily due to increased tariffs on China imposed by Trump.
President Biden did not reverse Trump’s China tariffs over his four
years in power. Third, if Trump’s America First policies are more about
fighting trade surpluses rather than targeting a specific country like
China, Vietnam has to be concerned because it has a large
(approximately $100 billion) trade surplus with the USA. Vietnam will
be as much at risk as China. Finally, it is not unreasonable to worry
about a new Trump trade policy that places tariffs on Vietnamese
products that have Chinese components within them as a response to
companies that try to avoid tariffs by fragmenting their manufacturing
processes between China and Vietnam.
All countries, including Vietnam, should be nervous about Trump’s
potential trade policies. He was elected to “disrupt” the system and a
large part of “the system” is global trade. However, Vietnam has a few
advantages that might help, or at least make Vietnamese leaders a bit
less nervous than Chinese leaders.
First, Vietnam and the USA have a bilateral trade agreement that has
been in place and working well for around 24 years. Any increases of
Vietnamese trade tariffs to the USA would go against this agreement.
Second, Vietnam has Most Favored Nation (MFN) status. This is also
called Permanent Normal Trade Relations or PNTR. Theoretically, this
protects free trade. China also has PNTR with the USA, but the tariffs
on Chinese imported goods were put in place because of Section 301 of
the Trade Act of 1974 which is about unfair trading practices and
National Security concerns which can be placed on products or cases
that are deemed potentially harmful to the national security of the
USA. Vietnam doesn’t have to worry too much about these issues.
Third, Vietnamese exports to the USA are comprised of everyday goods
that American consumers want and need. These are appliances,
clothing, food, and household goods rather than cars, airplane parts,
and high technology. Increasing tariffs on these goods will have to be
paid for by the American consumer who will respond accordingly in the
mid-term elections. Lastly, Vietnam is not completely reliant on the
American market. It has numerous markets it can and does export its
goods to due to its 15 bilateral trade agreements with countries around
the world. The USA is a large market (the largest for Vietnamese
exports), but it is smaller than China in terms of total trade.
As noted above, Vietnam SHOULD worry about any disruption to
global trade. All countries should. Trump is a disrupter, therefore, all
countries that rely on trade for their economic growth and
development should be worried. Vietnam is not an exception.
