Trump in Vietnam: Looking for a next China for U.S. firms but Europe ahead of the curve

Donald Trump has left China this Friday and arrived in Vietnam for the Asia-Pacific Economic Cooperation Summit. During his speech, he first praised the noteworthy growth of the Indo-Pacific region and then discussed the unbalanced trade relationship between the U.S. and this region.  

Notwithstanding Trump’s virulent rhetoric on trade agreements that he considers abusive, he has opened the door to new trade agreements achieving a more balanced trade relation. Moreover, he has shown inclination for bilateral agreement rather than a regional one, which is fully understandable after his “no-show” with the Trans-Pacific Partnership (TPP).

The search for a renewed bilateral trade agreement with Vietnam is particularly relevant to please US manufacturers. In fact, their disenchantment with China is obvious, as shown by the increasingly negative tone of the American Chamber of Commerce in China based on lack of market access and reciprocity.

We could, thus, expect that Trump – under the pressure of U.S. manufacturers feeling the squeeze in China – may want to come home with a new offshoring market for them. However, despite the restart of bilateral trade and investment negotiations between Vietnam and U.S. back in May this year, we do not expect big announcements to be made during this trip.

This time around, EU negotiators have been much faster that US ones as they have already finalized a free trade agreement (FTA) with Vietnam, pending ratification. To achieve this goal, though, two hurdles remain: an expected and an unexpected one. The former refers to the need for national Parliaments to ratify EU-level FTAs, as happened with the Comprehensive Economic and Trade Agreement (CETA). The unexpected one is the sudden abduction of a Vietnamese businessman accused of corruption by the Vietnamese government, which may put pressure against ratification at the German parliament. Nonetheless, both should be surmountable hurdles, which would put EU ahead of the US in their search of a new China for their manufacturing sector, namely Vietnam.

While Trump has left China with some presents for US investment banks, it might not be so easy to bring home the same privileges for US manufacturers. Moreover, Vietnam has the benefit of choice. Not only has it reduced trade barriers with Europe through an FTA which could soon be ratified, but Vietnam has also signed an FTA with China, which is in force since January 2010.