Waseda Professor: Vietnam Should Change Industrial Structure Based on Indirect Exports; Focus on Domestic Industries
The following is excerpted from the interview, which was conducted by Yomiuri Shimbun Correspondent Shunpei Takeuchi.
Japan and other Asian countries have grown thanks to the strength of the United States' huge and diversified market, where everything from luxury goods to inexpensive daily necessities sell. Following the Japan-U.S. trade friction [in the 1980s], South Korean and Taiwanese exports to the United States grew. However, Washington's trade deficit with them also expanded, causing trade friction. In recent years, China and Southeast Asian nations have expanded their exports to the United States and received benefits.
China, in particular, has accelerated its industrialization as the 'world's factory' on the back of its abundant labor force to become a superpower. China has become something that the United States can ill afford to ignore, and the first administration of U.S. President Donald Trump focused on measures against China.
The result of the U.S.-China trade friction at that time was China's accelerated relocation of production bases to Southeast Asian countries and India. Vietnam, which borders China, in particular saw an influx of capital, partly because it was easy for Chinese businesses to relocate production bases or to establish a framework on the division of labor.
I, as a member of the economic advisory group to Vietnam's then-Prime Minister Nguyen Xuan Phuc from 2016 to 2021, viewed the move as a golden opportunity for Vietnam to receive more direct foreign investment. However, I was also concerned that Vietnam's growing reliance on foreign capital could hinder the development of domestic companies. I advised the prime minister to prevent the unrestricted influx of new foreign investment into the country and select foreign capital that can help facilitate industrial restructuring.
Chinese companies [over the past decade] have stepped up their efforts to manufacture products in Vietnam to reroute Chinese products for export to the United States.
With foreign-invested enterprises accounting for more than 70% of the country's total exports by value, Vietnam prospered from exports to the United States. But last year Washington had a trade deficit with Vietnam in excess of $100 billion, its third largest.
Trump can be considered a 'businessman.' He applies business management techniques to domestic and foreign politics, and makes deals without regard for aligning interests. This trend has intensified in his second administration, with the announcement of reciprocal tariffs aimed at even allied countries.
Trump announced that tariffs on goods imported from Cambodia will be increased to 49%, for instance, as he sees Southeast Asian countries as locations for rerouting Chinese products for export to the United States.
On July 2, Trump said he had reached a tariff deal with Vietnam, ahead of other Asian countries. He said Vietnam will see its exports face a 20% tariff — less than half the 46% he had initially announced. Vietnam apparently made a significant concession in the trade negotiations by setting tariffs on U.S. products at 0%.
If the agreement is implemented, Vietnam's exports to the United States will slow down, while the United States will export to Vietnam aircraft, liquefied natural gas and other items which are in high demand in the country, thereby reducing its trade deficit. Trump will leverage this achievement to pressure other countries into making concessions.
Products transshipped in Vietnam for export to the United States will be subject to a 40% tariff. Vietnam should transform its industrial structure, which relies on exporting finished products made with intermediate goods from China and South Korea, to reduce its dependence on foreign capital and advance the upgrading of domestic industries. Diversifying export destinations is also necessary.
The presence of Japan is significant in terms of formulating responses to U.S. tariff measures. As a leader that has spearheaded the Trans-Pacific Partnership free trade agreement, Japan should strongly affirm its stance in defending free trade, which would benefit the global economy.
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