Manufacturing plants being reshuffled, disruption to global supply chain and livelihood of individuals affected are a result of the infamous trade war between the United States and China since 2018. While the phase one deal has been agreed in early Jan 2020 after numerous rounds of negotiation, the slowdown in economic activities and after effects has prompted companies way before to search for alternatives in bid to maintain their profit margins amidst the chaos. This is where Vietnam, a country in South East Asia commonly known for its rich culture and diversity has emerged as the big winner in this episode between these two economic powerhouse, and here’s why.

Don’t put your eggs in one basket.

A key fundamental lesson about investment is to decrease unwanted risks and the remedy is to diversify one’s portfolio to prevent over reliance on a particular sector. Likewise for manufacturing companies that suffered the unprecedented tariffs due to export location has prompted them to look abroad. By having one of the most competitive labor rate below US$3 per hour compared to China and Mexico, the attractive man-hours has pitted the home of Halong Bay at the forefront of the relocation race. With lower overheads in the books, companies may stand to recover the losses due to tariff incurred previously and build on from there onward.

Labor costs per hour for China, Vietnam, Mexico from 2016 to 2020 (C) Statista

The closer you are to danger the farther you are from harm.

With close proximity to their biggest manufacturing rivals – China, Vietnam is well-placed in terms of bridging the ASEAN market and East Asia supply chain requirements. This not only help goods and services to be traded faster or maintain like it used to as companies relocate away from China. Companies also enjoy the ease of doing business in Vietnam as they were ranked 69 in 2018, particularly improving on their credit accessibility and tax payment functions.

Afterthoughts

While Vietnam is reaping the benefits from the trade war, there is an ongoing concern to which the country’s infrastructure capacity is nearing its limit, especially on their ports. It is up to Vietnam’s government now to restructure the country developments to cope with the surging demands before their basket gets overwhelmed too.

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