Why Biden’s Pressure on China Is Good News for Vietnam

by Stratfor Worldview 

Source Link

Vietnam is well-positioned to reap the economic and political rewards of continued U.S. pressure on China over the next year, as the world gradually emerges from the COVID-19 crisis. The administration of U.S. President Joe Biden’s continued hardline stance toward China will present Vietnam with new opportunities to counterbalance Beijing — and with fewer pitfalls, as Biden will ease his predecessor’s trade pressure on Hanoi. Supported by this strengthening U.S. relationship and its own domestic political stability, Vietnam will provide an attractive alternative to China for manufacturing supply chains. The Biden administration’s more measured and less overtly confrontational stance toward China will also enable the Vietnamese government to increase outreach to the United States without it being seen as taking an aggressive anti-China stance.

The past 15 years have seen deepening U.S.-Vietnam ties under the administrations of both Barack Obama and Donald Trump, which will continue under the Biden administration.

Obama visited Vietnam in May 2016, where he met with top leadership and announced the full lifting of a 1984 embargo on lethal arms sales to Vietnam, although it remains subject to human rights provisions. The Obama administration had partly eased the embargo in 2014.

The Trump administration also engaged in frequent outreach to Vietnam as part of its strategy to counter Chinese influence. Trump visited Vietnam twice — once for the 2017 Asia-Pacific Economic Cooperation conference and again for the 2019 Hanoi summit with North Korean leader Kim Jong-un — meeting with Vietnamese top leaders both times.

In March 2018, the USS Carl Vinson made the first carrier visit to Vietnam since the end of the Vietnam war, followed up by the USS Theodore Roosevelt in March 2020. 2018 also saw Vietnam’s first-time participation in the U.S.-led Rim of the Pacific (RIMPAC) exercises.

Vietnam's trade surplus with the United States and transshipment of Chinese goods will remain under scrutiny, though Biden is unlikely to use tariffs or similar retaliatory measures to address this. The Biden administration will shift away from its predecessor’s unilateral and transactional approach to a refocus on U.S. allies and international institutions. This will see the United States step down from its broad global trade war, which has targeted countries with high trade deficits such as Vietnam.

In 2019, Vietnam’s trade surplus with the United States was $58 billion, the fifth-largest globally. And for the first 11 months of 2020, the U.S. government estimated that this surplus had risen to $63.7 billion.

In March 2018, the United States imposed duties on Vietnamese steel products meant to prevent the rerouting of Chinese steel around anti-dumping rules. In June 2019, the Vietnamese government issued new orders to customs officials to crack down on the re-export of Chinese-made goods to the United States.

The Trump administration’s approach to Vietnam focused on punitive tariffs to try to change the trade balance. In December 2020, Washington labeled Vietnam a currency manipulator, but left it to the Biden administration to decide whether to impose tariffs by releasing the findings of its Section 301 investigation in mid-January 2021. A separate U.S. International Trade Commission decision on whether to impose countervailing duties on Vietnam for causing "material injury" to U.S. industries is due in March 2021.

On the campaign trail, Biden advocated for a multilateral effort to negotiate trade rules to counter China's economic influence, making World Trade Organization reform a likely pursuit. This would allow Washington to leave questions of Vietnam's currency manipulation to be dealt with later in WTO reforms, which could result in Vietnam’s currency practices being deemed an export subsidy. To offset the trade deficit in the meantime, Biden could focus on pressuring Vietnam to increase its purchases of U.S. aircraft, liquified natural gas and agricultural products.

Biden’s maintenance of Trump-era tariffs on China will continue to make Vietnam an attractive destination for manufacturers looking to avoid U.S.-China trade tensions. While it will seek to mitigate trade disputes elsewhere, the Biden administration will find it difficult to unwind the Trump administration’s steep tariffs on China. This will benefit Hanoi by continuing to drive manufacturers to diversify their operations outside China. In addition to its political stability and proximity to China, Vietnam’s adroit handling of its domestic COVID-19 outbreaks and prioritization of manufacturing continuity will allow it to capitalize more easily on more low-end manufacturing operations that can more easily relocate their Chinese operations.

The business reaction to the Trump administration’s rising pressure on China proved to be a boon to Vietnamese exporters, whose shipments to the United States rose by 50 percent% ($88 million) between 2016-2019 compared with the 34 percent% increase ($44.5 million) reported between 2013-2016. In 2019, the Nomura Group projected that Vietnam would see a boost in growth GDP equivalent to 7.9 percent% of GDP.

The Vietnamese government has managed to successfully control the spread of COVID-19 in the country through targeted lockdowns, contact tracing and widespread testing, beating back several waves of the virus. Since the onset of the pandemic in early 2020, Vietnam has reported under 1,600 total COVID-19 cases, with just 35 deaths as of Jan. 28. The country, however, recently reported a fresh wave of local transmissions that potentially includes a new COVID-19 strain, which could make the outbreak more difficult to manage.

Importantly, Vietnam has also managed to largely maintain manufacturing output throughout the pandemic, with 2020 GDP growth estimated at 2.91 percent%, driven by 3.98 percent% growth in manufacturing. The World Bank expects the Vietnamese government to grow by 6.8 percent% in 2021, approaching its pre-pandemic levels of over 7 percent%.

Along with the Philippines, Vietnam will be a primary target for U.S. outreach, given its prominent role within the Association of Southeast Asian Nations (ASEAN), extensive maritime disputes with China and strong imperative to counterbalance its powerful neighbor. To this end, the South China Sea will be a key area of focus, as the United States works to shore up counter-claimants to China.

The Trump administration escalated the number of publicized freedom of navigation operations (FONOPs) in the South China Sea, regularizing the practice initiated under the Obama administration.

In July 2020, the U.S. State Department released a landmark public statement partially rejecting China’s South China Sea claims, dismissing China’s expansive nine-dashed line and specifically rejecting China’s claims around Vanguard Bank near Vietnam.

In August 2020, the U.S. Department of Commerce blacklisted several subsidiaries of state-run China Communications Construction Company (CCCC) for its role in helping Beijing build up islands in the South China Sea. Then, in January 2021, Washington blacklisted the state-run energy giant Chinese National Offshore Oil Corporation (CNOOC) for supporting Chinese efforts to block energy exploration by claimants in the South China Sea.

Also in July 2020, the United States signed a memorandum of understanding with Vietnam promising support for Vietnamese fishing vessels facing intimidation by Chinese vessels via enhanced law enforcement and surveillance capabilities. In November 2019, Washington also announced plans to provide Vietnam with a second coast guard cutter.

Vietnam’s early 2021 leadership transition will provide a great deal of domestic political stability through 2026. Hanoi will avoid the major power struggles and shakeups that accompanied the ruling Communist Party’s previous 2016 national congress, providing a contrast to potential political instability in peers such as Thailand, Indonesia, the Philippines and Malaysia. This will provide greater policymaking continuity in Vietnam compared with its neighbors — with the Philippines set for a power transition in mid-2022, Malaysia’s government risking collapse after the COVID-19 pandemic, and Thailand’s government beset by a chronic protest movement.

The 13th National Congress of the Communist Party of Vietnam will be held Jan. 25 - Feb. 2. In addition to at least 14 new politburo members, the meeting will see the party select individuals for the top posts in the Vietnamese political system — including party general-secretary, state president, prime minister and national assembly chair — who will then be confirmed in the coming months.

Crucially, the next party congress will also determine whether Vietnam reverts to its longstanding “four-pillar” leadership model, in which all four of these posts are held by different individuals, after the 2018 death of the president led to the consolidation of the presidency and general secretary position under Nguyen Phu Trong.

Leaks from the party’s 15th plenum ahead of the national congress indicate that Trong will remain general-secretary beyond his two-term limit, but will allow Prime Minister Nguyen Xuan Phuc to take on the presidency, thus restoring collective leadership. This compromise will enable Trong, who is 76 years old and in poor health, to oversee the continuation of his anti-corruption campaign, as well as facilitate a smooth transition to a chosen successor after his likely step down before 2026.

With Biden in Power, Vietnam Is Set for Success is republished with the permission of Stratfor Worldview, a geopolitical forecasting and intelligence publication from RANE, the Risk Assistance Network + Exchange. As the world's leading geopolitical intelligence platform, Stratfor Worldview brings global events into valuable perspective, empowering businesses, governments and individuals to more confidently navigate their way through an increasingly complex international environment. Stratfor is a RANE (Risk Assistance Network + Exchange) company.