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Commentary: Vietnam’s air exports to the U.S. increase as China-U.S. trade war simmers

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The Asian supply chain is best described as a spider web with China the central focal point. It was like that well before President Trump’s tariffs were implemented. Low-labor manufacturing was already shifting to other nations in Southeast Asia while manufacturing in China took a step up the value ladder. Meanwhile China’s domestic market continues to demand goods from beyond its borders, which benefits such countries as Japan, South Korea, Taiwan and nations within the Association of Southeast Asian Nations, or ASEAN. While the European Union was China’s largest single import partner in 2018, Asian countries, combined, far surpassed all other countries in terms of imported value of goods.

Since 2000, Chinese manufacturing labor costs have risen on average, 15.6 percent per year. However, regional manufacturing ecosystems have formed in China, often consisting of assembly plants, skilled workers, and material and component suppliers. This vertical integration has created not only value but also efficiencies that have kept a good bit of manufacturing from being offshored to other countries.  Components and other imported goods flow to and from these ecosystems and elsewhere in China from such countries as Cambodia, Malaysia, Thailand and Vietnam. According to China’s National Bureau of Statistics, 27 percent of China’s imports in 2017 were classified as intermediate goods, which are components imported for China’s manufacturing export. This is down from around 50 percent in 2008. Still, intra-Asia trade as a percentage of total China trade reached 60 percent in 2016 according to the Asian Development Bank, a clear indication of the importance of intra-Asia trade.

“Vietnam takes advantage of us even worse than China.” – President Donald Trump in interview with Maria Bartiromo on Fox Business Network

China has woven such a tight spider web that there are now calls for tariffs on Vietnamese exports to the United States. China is Vietnam’s top import trade market, importing over $70 billion of goods. Meanwhile, Vietnam’s top export destination is the United States, which imported over $40 billion in goods from Vietnam in 2017.

According to Vietnam customs data, for the first four months of 2019, exports to the United States increased 29.7 percent from the same period in 2018. Meanwhile, imports from China for the first four months of 2019 increased 21.3 percent.

The U.S. Census Bureau noted that in terms of customs value of goods, the majority of Vietnamese goods exported to the United States traveled via ocean. However, 33.6 percent traveled by air in the first four months of 2019, up from 31 percent for the same period in 2018.

U.S. Census Bureau’s USA Trade Online

In terms of air volume (in kilograms), Vietnamese imports increased 16.7 percent for the first four months of 2019. The largest commodities imported by air into the United States were smart phones, up over 64 percent year-over-year and in terms of customs value, more than double for the same period.

U.S. Census Bureau’s USA Trade Online

LG Electronics, Samsung, Apple, Xiomi and Huawei are among the leading smart phone brands that have manufacturing facilities in Vietnam. Samsung has the largest Vietnamese total export market share in terms of smart phones at over 30 percent of the total market. All of these brands have moved part of their production to Vietnam to reduce costs.

But what percentage of smart phones are actually made in Vietnam? It’s hard to say as it goes back to Asia’s supply chain spider web effect. South Korea, home to Samsung and LG Electronics, produced just 1 percent of smartphones in 2018.

Vietnam became the third-largest export market for South Korea in 2018, behind China and the United States, as South Korean companies sent goods in mid-production to be finished in Vietnam. Likewise, Chinese manufacturers have probably done the same as it is Vietnam’s largest import trade partner with integrated circuits and telephones being the largest Chinese import commodity.

However, as Vietnam reaps the benefits as a low-cost manufacturing location, its infrastructure is straining. Ramping up the ability to transfer goods from Vietnamese factories to ports is important. To address this, the country is building a deep-water port that can make transfers easier, but that won’t open for another three years.

In terms of air cargo, the International Air Transport Association ranks Vietnam as one of the fastest-growing aviation markets globally and expects it to become the fifth-fastest growing market by 2035. Investments in airports are ongoing but more to meet the increased passenger growth. Examples include a new terminal which is under construction at Tan Son Nhat International Airport to ensure that the airport can serve up to 50 million passengers per year, and expansion of Noi Bai International Airport to increase its handling capacity to 80-100 million passengers per year.

Has Vietnam taken advantage of the United States or is it caught in the middle of a trade war between the United States and China? Asked if he wanted to “tariff” Vietnam, President Trump did not say “no,” but said that the United States was in discussions with the country. After the interview, Vietnam issued a statement agreeing to buy more U.S. goods to help it reduce a $39.5 billion surplus. The country will sign a memorandum of understanding with the U.S. Department of Energy that includes buying “large volumes” of liquefied natural gas from the U.S.

Cathy Roberson

Cathy Morrow Roberson is a market analyst with a research and economics background. Roberson began her career as a librarian; she was then an analyst at an e-commerce start-up; and was an analyst at UPS Supply Chain Solutions supporting market, competitive and mergers & acquisition research and analytic needs for 11 years. After a brief stint with specialized consulting firms, Roberson now manages the logistics-focused market research firm, Logistics Trends & Insights LLC, which is based in Atlanta, Georgia.