FOREIGN TRADE UNIVERISTY

FACULTY OF BUSINESS ENGLISH

=====000=====

SPECIALIZED ENGLISH 3
THE IMPACT OF US - CHINA TRADE WAR
ON INTERNATIONAL TRADE
Class: TAN432(2.2/2021).2-BS.
Instructor: Lecturer Phan Kim Thoa
Students’ name:
1. Diêu Linh Chi - 1815510020
2. Nguyễn Thị Cúc - 1815510024
3. Đào Thị Ngọc Huyền - 1814410112
4. Nguyễn Thị Diệp Linh - 1811110346
5. Trần Hương Quỳnh - 1814410187
6. Bùi Thị Minh Thìn - 1814410199

Hanoi, May 2021

 CONTENTS
Abstract .......................................................................................................................... 4
1. Introduction ............................................................................................................ 4
2. Theoretical framework ........................................................................................... 4
2.1. International trade ............................................................................................. 4
2.2. Tariff.................................................................................................................. 5
2.3. Quota ................................................................................................................. 5
2.4. Trade war........................................................................................................... 6
3. Overview of US- China trade war .......................................................................... 6
3.1. Chronology ........................................................................................................ 6
3.2. Main causes ....................................................................................................... 9
4. The impact of US - China trade war on international trade ............................... 11
4.1. The outcomes of international trade .............................................................. 11
4.1.1. Impact of tariffs on real exports................................................................ 12
4.1.2. Indirect effects of the tariffs: Impact on macroeconomic indicators ........ 13
4.2. Trade structure ................................................................................................ 14
4.3. Trade diversion effect ...................................................................................... 15
5. The Impact on foreign trade of Vietnam ............................................................. 18
5.1. Positive impacts of trade war on Vietnam ..................................................... 18
5.2. Negative impacts of trade war on Vietnam ................................................... 20
6. Suggestions ............................................................................................................ 21
7. Conclusion ............................................................................................................. 23

2
TABLE OF FIGURES
Figure 1: Main flow changes between China, the US and other economies .................... 14
Figure 2: The effects across a few selected economies ................................................... 16
Figure 3: The major beneficiaries of the trade diversion effects for each sector ............. 17
Figure 4:TOP 10 EXPORT MARKET OF VIETNAM IN 2019 .................................... 19

TABLE OF TABLES
Table 1: The US – China Trade War’s milestone. Source. The author’s own elaboration
based on .......................................................................................................................... 9
Table 3: Percent change in real exports .......................................................................... 12
Table 4: Percent change in some macroeconomic indicators ......................................... 13

3
Abstract
The trade war between the US and China has become a controversial topic since
President Trump ignited it by imposing a tariff on imported goods from China.
In the present study, we seek to explore the fundamental dimensions and future directions
of the US–China trade war and delineate a theoretical framework for understanding its
impact on international trade. We come to a conclusion that trade wars between China and
the US will hurt most countries and the world especially in GDP and manufacturing
employment, but benefit their welfare and trade.

1. Introduction
A trade war is happening between China and the US, the two largest economies in
the world. This trade war has definitely been the largest in the global market in the past
half century, if not longer. In this research paper, we review the trade literature to search
for theories and ideas that may help to explain trade wars or conflicts. These theories
include imperfect competition, increasing returns, terms of trade argument, distributional
effects and political econ-omy argument. We then provide analysis and assessment of
the current situation as well as the impact of the ongoing trade war. Hence, we propose
some recommendations to formulate a specific strategy to help Vietnam have the right
direction in the future.

2. Theoretical framework

2.1. International trade

International trade is exchange of capital, goods, and services across international
borders or territories. In most countries, it represents a significant share of gross domestic
product (GDP). While international trade has been present throughout much of history, its
economic, social, and political importance has been on the rise in recent centuries.1

1
“The Meaning and Definition of Foreign Trade or International Trade” at
https://www.yourarticlelibrary.com/foreign-trade/the-meaning-and-definition-of-foreign-trade-or-international-
trade-explained/5972.
4
 According to Wasserman and Haltman, “International trade consists of transaction
between residents of different countries”.
International trade consists of ‘export trade’ and ‘import trade’. Export involves sale
of goods and services to other countries. Import consists of purchases from other countries.
Generally no country is self-sufficient. It has to depend upon other countries for
importing the goods which are either non-available with it or are available in insufficient
quantities. Similarly, it can export goods, which are in excess quantity with it and are in
high demand outside.
International trade means trade between the two or more countries. International
trade involves different currencies of different countries and is regulated by laws, rules and
regulations of the concerned countries. Thus, International trade is more complex.
2.2. Tariff
Tariff, also called customs duty, tax levied upon goods as they cross national
boundaries, usually by the government of the importing country. The aims are either to
increase the prices of the imported products to at least the level of the current domestic
prices, or raise revenue for the government. 2
According to the World Trade Organization (WTO):
“Customs duties on merchandise imports are called tariffs. Tariffs give a price advantage
to locally-produced goods over similar goods which are imported, and they raise revenues
for governments. One result of the Uruguay Round was countries’ commitments to cut
tariffs and to “bind” their customs duty rates to levels which are difficult to raise.”
Tariffs are one of the most pervasive and oldest forms of trade protection, often
described as a barrier to trade.
2.3. Quota
Quota refers to a defined upper limit set by the government, on the number of goods
or services imported or exported from/to other countries, in a particular period. It is a
measure used in the regulation of trade volume between nations.3

2
“What are tariffs? Definition and meaning” at https://marketbusinessnews.com/financial-glossary/tariffs-definition-
meaning.
3
.”Difference Between Tariff and Quota”, July 1 2017 at https://keydifferences.com/difference-between-tariff-and-
5
 Quotas do not generate revenues for the government, but aims at encouraging the
production of goods within the country; that helps the nation to become self-sufficient and
decrease dependency on imports from other countries. In this way, quota helps in reducing
imports and thus, protecting own industries from foreign competition.
Tariffs along with quotas are two weapons that countries use to both protect their
domestic producers and improve their trade balance.
2.4. Trade war
A trade war is when a nation imposes tariffs or quotas on imports and foreign
countries retaliate with similar forms of trade protectionism. As it escalates, a trade war
reduces international trade.4
A trade war starts when a nation attempts to protect its domestic industry and create
jobs. In the short run, it may work. Tariffs are supposed to give a competitive advantage to
domestic producers of that product. Their prices would be lower by comparison. As a
result, they would receive more orders from local customers. As their businesses grow,
they would add jobs.
But in the long run, a trade war costs jobs. It depresses economic growth for all
countries involved. It also triggers inflation when tariffs increase the prices of imports.

3. Overview of US- China trade war

3.1. Chronology
It is considered that March 23, 2018 was the formal date when the trade war began
with D. Trump signing the “Presidential Memorandum Targeting China's Economic
Aggression” and introducing tariffs on steel and aluminium. However, the tensions in the
economic relations of the US and China had appeared and were discussed earlier. The
WTO granted China the status of a market economy in 2017, which aroused criticism from
the US, because the decision limited opportunities for protectionism against companies
from China. The US refused to recognize China as a market economy, which was the first

quota.html
4
Trade Wars and their Effect on the Economy and You, February 23, 2021
https://www.thebalance.com/trade-wars-definition-how-it-affects-you-4159973.
6
step towards the confrontation within the “Group of Two”. Trump's confrontational policy
was reflected in the National Security Strategy, adopted in December 2017. It introduced
restrictions on China’s investments in American technology, tightened exports control and
expanded the list of dual-use products that could not be shipped to China. The Entity List
was introduced: US companies were banned from doing business with enlisted companies,
including the ZTE Corporation which was accused of violating US sanctions against Iran.

Time period, US actions China’s actions

General context

April – May 2017 Top- Investigation on steel and US companies get

level negotiations to aluminium imports is initiated. greater access to China’s
resolve trade disbalances; The US allows China to sell agriculture, energy, and
100-day plan for trade talks cooked poultry to the US financial markets

February – April 2018 Global safeguard tariffs: 30% 15-25% tariffs on 128
Investigation into China’s on solar panels; 20% on product categories
acts, policies and practices washing machines; 25% on including fruit, wine,
relating to technology steel imports; 10% on seamless steel pipes,
transfer, intellectual aluminium imports. Measures pork and recycled
property and innovation. targeting China: restricting aluminium. 178.6%
The US initiates a WTO investment in key technology antidumping duties on
case against China for sectors; imposing import sorghum imports from
discriminatory licensing. tariffs on aerospace, IT, the US
The US releases the official communication and
statement (May 2018 machinery; including ZTE in
the Entity List

July 2018 Ongoing 25% tariff on 818 products 25% tariff on 545
negotiations; internal (imports worth $34 billion) products (imports worth
$34 billion), including

7
discussion of the new lists agricultural products,
of restrictions autos and aquatic
products

August 2018 The parties 25% tariff on 279 goods 25% tariffs on 333 goods
exchange preliminary lists. (imports worth $16 billion) (imports worth $16
China files WTO claim and including: semiconductors, billion) including: coal,
complain against the US chemicals, plastics, copper scrap, fuel, buses
motorbikes and electric and medical equipment
scooters

September 2018 China 10% tariff (announced subject 5% and 10% tariffs on
cancels the trade to further increase up to 25% in $60 billion worth imports
negotiations and releases 2019) on $200 billion worth
the White Paper stating the imports from China
official position

December 2018 G20 China increases import

summit in Buenos Aires. The US announces that the of agricultural and
The US and China agree new list of tariffs will be energy products, and
not to increase tariffs for 90 delayed lowers tariffs on cars and
days auto products from 25%
to standard 15%

December 2018 G20 25% tariff (increase from 10%) 25%-20%-10% tariffs
summit in Buenos Aires. on $200 billion worth imports. introduced for $60
The US and China agree Huawei and five other billion worth of imports
not to increase tariffs for 90 companies of China are added (increased from 10%-
days to the Entity List 10%-5%
correspondingly)

8
 June 2019 G20 summit in The ban on deals with Huawei China announces its
Osaka. The parties agree to is reconsidered. 110 products plans to increase import
avoid increasing tariffs are excluded from the 25%- of agricultural products
tariffs

After G20 Summit, the two The US introduced a new list China then imposed 5%
side soon threatened to of tariffs on $125 billion worth tariff on US crude oil and
increase the taiffs of imports from China other goods worth $75
billion.

The so-call “phase one” The US pledged to abandon a China vowed to boost
deal signed on January 15, fresh round of tariffs while imports of services and
2020 cutting tariffs; industrial goods from the
U.S

Table 1: The US – China Trade War’s milestone. Source. The author’s own
elaboration based on5

3.2. Main causes

The causes of the US protectionist actions, and not only against China, can be
identified as internal and external – from the perspective of the US own interests.
Supporting domestic producers by limiting foreign competition can reduce overall
consumption in the US but that will also increase the production volume of mainly steel
and aluminium products to which increased tariffs apply. In addition to supporting
domestic producers, the chronically passive balance of the US current account can also be
considered to be the internal factor. Mutual trade with the PRC6 is a significant factor
influencing the increasing current account deficit of the US. We can identify four main
causes, or incentives for the trade war between the US and China:

5
SHS Web of Conferences 73, 01012 (2020)
6
P.R.C is the People's Republic of China, the formal name of China
9
 Firstly, the trade war is supposed to reduce the deficit of bilateral trade and bring
American jobs back home. Out of the $796 billion worth US trade deficit in 2017, China
accounted for $376 billion, or 47%, almost a half . The US acknowledges several problems
in the trade with the PRC, the trade balance deficit being the most important one. The issue
has been emerging for decades and still has an increasing trend (although the US trade
deficit with China reached a historic low in May 2019). The US does not consider trading
with China "fair".

Analysis of the commodity structure of exports and imports shows that China
imports mainly American-interdependent products7, while the US imports China’s final
products: “the US mechanical and electrical products from China are as high as 50% of the
total of the top ten commodities in Sino-US trade. It can also be seen that the technological
differences between China and the US in this field are not very large” Out of the total
Chinese exports, 19% goes to the US. But only 8.3% of the US exports go to China. In
2018, exports from the US to the PRC dropped by 21% as a result of the introduction of
protectionist measures, but reduction was only by 12% in the trade flow from China to the
US.

Secondly,the trade war is supposed to reduce high-tech capacity of China. The US

is not satisfied with China’s requirements on creating joint ventures for technology transfer
as a contribution to authorised share capital of local companies. Another sensitive topic is
Chinese public investment creating unfair competition in global markets. The US has been
alerted by China's success in implementing a strategic plan for production modernization,
increase in production of robots, lithium batteries, network equipment, etc. The US has
increased import tariffs up to 25% on electronic products from China, including
telecommunication and network equipment.

7
Interdependent products are the products that completely produced domestically. Some independent products of
China are namely TV sets, hardwares, electronic equipments,…
10
 Thirdly, the trade war is supposed to prevent the growth of China’s military
strength. It is absolutely unacceptable for the US to let China achieve superiority in the
military sector, even in the long run . Consequently, the US is taking measures to ensure
its competitive advantage in the national security sector and to prevent China from using
American dual-use technologies8.

Last but not least, the trade war is supposed to cut the federal budget
deficit. According to Dongsheng Di, Gal Luft, & Dian Zhong, “the US will need additional
sources of income like tariffs in order to balance its budget, and tariffs on Chinese products
is viewed as a main source of such income” . The budget deficit of the US federal
government grew and exceeded USD 21 trillion, which was attributed partly to tax cuts in
December 2017. The Chinese government also has a much healthier fiscal position and is
free to compensate any industries harmed by a trade war. By contrast, the US government
is facing a large budget deficit of some 4 percent of GDP that is set to rise in the next few
years .

4. The impact of US - China trade war on international trade

4.1. The outcomes of international trade

The trade war has already reverberated across the world economy. For the United
States, increased tariffs operate exactly like a broad, large, sales tax on imported goods that
is paid by US consumers- increasing prices and reducing demand- and by producers who
see a rise in the cost of imported intermediate inputs, damaging competitiveness. For the
Chinese, the tariffs raise the prices of consumer goods but have less direct impact on
producers, since the Chinese have exempted some intermediate inputs. For the United
States, both total exports and total imports decline. China, however, can successfully divert
its exports away from the United States, expanding in other markets and increasing total

8
In politics, diplomacy and export control, "dual-use" refers to technology that can be used for
both peaceful and military aims. More generally speaking, dual-use can also refer to any technology which can
satisfy more than one goal at any given time. Thus, expensive technologies that would otherwise benefit only
civilian commercial interests can also be used to serve military purposes if they are not otherwise engaged, such as
the Global Positioning System
11
exports. A chain reaction is then set in motion: China increases exports to Europe and
countries in East and Southeast Asia, who in turn increase their exports to the United States.
The United States is less able to divert its exports and change sources of imports, many of
which are part of supply chains that are difficult to relocate. There is a complex mix of
direct and indirect effects at work, with different impacts in the two economies. Global
trade declines slightly. In terms of aggregate welfare (or aggregate final demand) both the
United States and China lose from the trade war, with a larger percentage and absolute loss
for China- although the numbers are small. All other countries gain welfare, benefitting
from indirect spillover effects on international prices, once they have adjusted to the short-
term disruptions associated with rebuilding supply chains and shifting labor and capital to
alternative activities.
4.1.1. Impact of tariffs on real exports
Table 2: Percent change in real exports

China
East and
Exporting All United and
NAFTA Europe Southeast Total
country/region Other States Hong
Asia
Kong
United States 0.42 0.19 -1.94 0.2 -0.33 0 -7.32
Canada 0.19 -1.11 -0.89 -1.28 -0.24 0.23 -0.29
Mexico -0.16 -2.41 -2.44 -2.1 -0.65 -0.06 -2.63
Europe 1.31 -0.1 -0.54 -0.16 -0.02 1.51 -0.98
China and Hong
-4.59 2.26 2.05 2.42 0.51 -5.61 1.49
Kong
All countries -0.15 0.02 -0.22 0.13 -0.05 -0.33 -0.85
Source:Trade Map

The declines in Chinese exports to the United States are large (5.61 percent). The
Chinese successfully divert exports away from the United States, increasing their exports
to all other regions, and total Chinese exports rise slightly (0.51 percent). There is a chain
reaction: China increases exports to Europe and countries in East and Southeast Asia, who
12
in turn increase exports to the United States. The United States, on the other hand, sees a
small decline in total exports (0.33 percent), with the decline spread across all destination
regions. The impact of the tariff increase on other countries is mixed. Canada and Mexico,
whose economies are tightly linked to the United States, see export declines along with the
United States. Because of the costs associated with shifting trade, all non-warring countries
see a small decline in their total exports.

4.1.2. Indirect effects of the tariffs: Impact on macroeconomic indicators

Table 3: Percent change in some macroeconomic indicators

GDP Final demand Terms of trade Exchange rate

United states -0.02 -0.04 -0.16 0.15
Canada -0.02 0.16 0.63 -1.05
Mexico -0.08 0.29 1.18 -1.84
Europe -0.01 0.02 0.06 0
China and Hong Kong 0.02 -0.35 -1.26 2.09
Source: World Bank

The different results for China and the United States are largely due to the indirect
effects of the tariffs on world prices and exchange rates. The United States suffers a small
terms-of-trade loss(0.16 percent). China has significant terms-of-trade losses (1.26
percent). China is more dependent on US markets than the United States is on China. The
US real exchange rate changes little-a tiny depreciation. The real exchange rate in China,
on the other hand, depreciates (2.09 percent)- an expected reaction when a major trading
partner imposes large tariffs that effectively tax Chinese exports. On net, the combined
effects are negative but small for US exports and positive but small for China.

In terms of welfare (aggregate final demand = GDP + imports – exports), both the
United States and China lose. China’s losses are larger than US losses, both in percentage
and absolute terms. The United States loses 0.04 percent which translates to $8 billion a
year. China loses 0.35 percent which translates to welfare losses of $43 billion billion a
year. These larger welfare losses for China are due largely to changes in world prices that
13
worsen China’s terms of trade (lower export prices relative to import prices) by 1.26
percent. China pays a cost to divert trade away from the United States to other markets. If
the trade war persists and China completes the process of trade diversion, it would also be
costly to return to the old trade patterns when the trade war ends—the changes in the global
structure of trade are likely to be irreversible. Welfare in all other countries improves
slightly, largely because of the improvements in their terms of trade. The policy-induced
disruptions to international markets change world prices and real exchange rates for non-
participating countries, allowing them to adjust to the shocks and gain from the market
shifts, once they have adjusted to the short-term disruptions associated with rebuilding
supply chains and shifting resources across sectors.

4.2. Trade structure

Figure 1: Main flow changes between China, the US and other economies

Affected by the trade war, the trade flows between China, the US and the other
economies will change. Global trade volume will shrink by 0.42%~1.17% under the three
Scenarios. Figure 1 shows main flow changes between China, the US and other
economies.
In this figure, trade flow A, B and C represent changes in bilateral trade between
China and the US, China and other economies, the US and other countries respectively.
According to the simulation results, the US-China trade war indeed hits Chinese and
the US bilateral trade. Chinese exports to the US will decrease by 23.77%~69.22% while
14
the US exports to China will decrease by 31.31%~57.60% and the largest bilateral export
declines will both occur under Scenario 3. Trade diversion effects of the trade war will
promote China transfer its exports from the US to other countries and the export value will
increase by 3.77%~11.21%. Countries other than China and the US will increase their
exports to the US by 0.78%-1.58% after accepting more Chinese exports but reduce their
exports to China by 0.28%~2.31%. The US will expand export to other countries by 2.49%-
6.37%.
For countries or regions other than China and the US, the US-China trade war will
strengthen their trade ties with China and the US, and weakens trade tightness between
themselves. For example, total exports of Taiwan Province of China, Vietnam, Korea, and
ASEAN to the US will increase the most. As the trade war expands and deepens, their
exports to the US will increases. At the same time, their exports to other countries and
regions decrease. Brazil, Argentina and Western Asia countries’ exports to China will
increase to bridge the gap in China's soybean and energy products demand.
4.3. Trade diversion effect
One consequence of United States bilateral tariffs on China has been to increase
United States imports from elsewhere. In this context, a key question is which country has
been best able to replace China in the United States market. This section investigates the
outcome by identifying which countries have benefitted from the trade war, and by how
much.
Looking beyond averages, trade diversion effects show considerable variance both
across countries and across sectors. Large countries with spare supply capacity and
available trade infrastructure were the ones better positioned to replace China in the United
States market. Existing trade agreements as well as geography also appear to be playing a
significant role. Figure 2 reports the effects across a few selected economies along with the
sectors accounting for most of the gains.

15
 Figure 2: The effects across a few selected economies

Source: Author’s calculation based on United States Census Bureau data.

Note: ‘‘Other Sectors’’ includes everything else, except the sectors displayed for each
economy.

Taiwan Province of China was the largest beneficiary of the trade diversion effects
of United States tariffs on China, accounting for additional exports to the United States of
almost US$ 4.2 billion in the first half of 2019.

For Taiwan Province of China, the benefits are largely related to an increase in
exports of office machinery and communication equipment. Mexico’s increase in exports
to the United States due to tariffs on China are quantified to be about US$ 3.5 billion,
mostly in the agri-food, transport equipment and electrical machinery sectors. The
European Union benefitted by trade diversion effects of about US$ 2.7 billion, largely due
to increases in exports in the machineries sectors. Viet Nam’s benefits account to about
US$ 2.6 billion and are mostly concentrated in communication equipment and furniture.
Trade diversion effects in favour of the Republic of Korea, Canada, and India were smaller
but still substantial (between US$ 0.9 and 1.5 billion). The remainder of the trade diversion
effects was largely to the advantage of other South East Asian countries (US$ 1.7 billion).
The rest of Latin America, Sub Saharan Africa and the rest of the world were only
marginally able to benefit from trade diversion effects. United States imports from China
have been replaced with imports originating elsewhere to a varying extent, depending on
16
the sector. Figure 2 reports the statistics of Figure 1 but better illustrates trade diversion
effects by sector. Moreover, it also provides the distribution of the net trade losses (i.e. the
US$ 14 billion of United States imports not replaced by other countries).

Office machinery has been the hardest hit sector in the ongoing trade war, with
United States imports from China falling by almost US$ 10 billion in the first half of 2019.
Trade diversion effects for this sector are quantified to be about US$ 4.5 billion, most of
which to the advantage of Taiwan Province of China. This leaves about US$ 5.5 billion of
trade losses. Given the magnitude of the decline in United States imports from China, and
the world market dominance of Chinese firms in this sector, the fact that other countries
were not able to supply for the loss of imports from China is not a surprising outcome.
Communication equipment and furniture are two other sectors where the increase in
imports from other countries were not sufficient to replace the decline in United States
imports from China. In these two sectors Viet Nam exporters benefited the most. Trade
diversion effects in the machinery sectors have been more diverse, with a substantial share
of the increase in United States imports coming not only from the East Asian region. For
these sectors Mexico and the European Union were the major beneficiary of the trade
diversion effects, as well as Japan.

Figure 3: The major beneficiaries of the trade diversion effects for each sector
Source: Author’s calculation based on United States Census Bureau data.
17
5. The Impact on foreign trade of Vietnam
The US-China trade war has been the main reason behind the uncertainty in
financial markets during 2018 and 2019, which has affected investor confidence globally.
The trade war has significant impacts on the economic indicators globally and regionally.
As a country engaged in the development of the global value chain, Vietnam is likely to be
affected by the US-China. The fact of the matter is that the US-China trade war has not
only opened up economic opportunities for Vietnam, but also highlighted the constraints
that the country has to grapple with.
5.1. Positive impacts of trade war on Vietnam
One of the positive impacts of the trade war is that countries like Vietnam have been
presented with the opportunity to increase their export of certain goods to the United States
and China. According to Yasuyuki Sawada, the Asian Development Bank’s chief
economist, Vietnam stands to benefit the most from the US - China trade war because
Chinese goods affected by tariffs are also consumed and produced in Vietnam9. As a result,
Vietnam can export these products directly to the United States, and thus gain more market
share from Chinese products subject to tariffs when exporting to the United States. At the
same time, it can attract more FDI into these industries, thereby creating more jobs,
increasing exports, and improving Vietnam’s overall trade balance.
According to Vietnam’s General Department of Customs, the value of Vietnam’s
exports to the United States reached US$ 47.53 billion at the end of 2018 – an increase of
14.3 per cent, compared to 2017. In 2019, Vietnam’s exports to the United States was worth
US$ 61 billion, and the United States continued to be Vietnam's largest export market.

9
“US-China trade war gives Vietnam a winning streak”, Financial Times, 23 June 2019
18
 Unit: Billion USD

Figure 4:TOP 10 EXPORT MARKET OF VIETNAM IN 2019

Source: General Department of Vietnam Customs
Another positive impact of the US-China trade war is that companies in certain
sectors are either relocating out of China or diversifying from the Chinese market to
Vietnam. The flow of foreign direct investment has shifted away from China to other
countries. Many companies with bases in China have already relocated or are considering
relocation to other destinations as they do not see any resolution to the dispute in the near
future. China is no longer a low-cost sourcing destination. Especially in the current
situation where China is suffering high taxes from the U.S., its market is gradually
becoming less attractive to investors.
According to data from the Ministry of Planning & Investment in 2019, total FDI
reached 38,02 billion USD which is the highest in the period 2010 - 2020. Multinational
firms such as Foxconn, Samsung, and Daikin are already opening new factories in
Vietnam rather than in China, due to the doubling of Chinese factory wages over the last
seven years10. It has even been reported that Nintendo will shift part of the production for
its Switch console to Vietnam, from China. However this process will take place on a
moderate scale, as production in China is still attractive to multinational corporations due

10
“US-China Trade Tensions and Vietnam”, Vina Capital, 23 July 2018, at Link
19
to good labour skills and the country’s modern infrastructure network.
5.2. Negative impacts of trade war on Vietnam
There are, however, also negative impacts from the US-China trade war. With
Vietnam’s high trade liberalization and the fact that both China and the United States are
its key trading partners, Vietnam will face a complex and multidimensional problem as a
result of the US-China trade war.
Trade with China will be affected in three distinct ways. Firstly, when China boosts
its exports to Vietnam, this will result in an increase in Vietnam’s trade deficit with China,
and Vietnam’s domestic enterprises will face more competition from Chinese goods. In
view of China's comparative advantages over Vietnam in raw material supply, its position
in the global supply chain, coupled with its geographical proximity to Vietnam, should
China expand its export share to ASEAN countries – including Vietnam – in the future,
Vietnam's domestic market will be impacted, especially its steel, furniture, and wood
processing industries. Secondly, when additional taxed Chinese goods shift to other
markets (apart from Vietnam), Vietnam's exports may face increased competition in these
markets. Thirdly, if China is unable to find an export market to replace the United States,
it is possible that some of its exports will have to be consumed within China. This will
make it more difficult for Vietnam’s commodities to be exported to China. In fact,
Vietnam’s export turnover to China in the first eight months of 2019 was US$23.89 billion,
a decrease of 2 percent compared to the same period in 2018, according to the General
Department of Vietnam Customs.
Regarding trade with the United States, one key negative impact is Vietnam being
used as a convenient trans-shipment platform for Chinese exports to sidestep the tariffs
imposed by America on China. An example of this is Chinese steel being brought into
Vietnam and repackaged as Vietnam’s steel exports to the United States. This has led to
tensions between Vietnam and the United States, with America slapping tariffs of over 400
per cent on Vietnam’s cold rolled and flat steel11. Although the items subject to tax are

11
“U.S. imposed duties of more than 400% on steel imports from Vietnam”, Vietnam Insider, 4 July 2019, at Link.
20
mostly machinery and technology products which are relatively specific and not too easy
for China to transship to Vietnam to avoid American tax, certain concerns have emerged.
The US government is keeping a close watch on the possibility of transferring
production or trade from China to other countries, such as Vietnam, to circumvent
antidumping and countervailing duties. These US moves are, however, not entirely
satisfactory from Vietnam’s perspective as the country has continued to improve the
investment environment for US businesses in Vietnam and is proactively addressing the
issues of concern to the United States which include imported cars, network security,
electronic payment and financial-monetary matters. Furthermore, Vietnam’s signing of an
EVFTA on 30 June 2019 further illustrates Vietnam’s focus on building economic
relationships with other countries, in the context of growing scrutiny from the United
States. Vietnam, however, still needs to establish effective monitoring mechanisms and
relevant measures to avoid any negative impact and mitigate risks from the US-China trade
war.
In the long term, the US-China trade war can cause problems such as inflation,
resource shortage, environmental damage, and labour shortage. The increase in foreign
investment as a result of the trade war has increased the amount of money in circulation,
for instance. There is also a continuing risk of the VND’s depreciation – the USD has
continued to strengthen since the start of the trade war, leading to the depreciation of
several currencies, including the VND 12. If the Vietnamese government fails to cope, this
may trigger a new round of inflation and a financial crisis. Given the current rates of
inflation and industrial transfer, Vietnam is also showing signs of labour shortage.
6. Suggestions
In such context, there are several solutions for the government and companies to
utilize all advantages and minimize risks as well as costs during the US-China Trade War.
For the government:

12
The VND has depreciated by 1.5 per cent since 2018. The exchange rate of the VND against the USD fluctuated
once

21
 Firstly, the Government of Vietnam should improve anticipation system for this
trade war, find out the potentials as well as challenges by following every step of both
China and US so that plans for proper solutions are always readily carefully prepared and
can be used whenever.
Secondly, if investors shift their investments from China to other countries,
Government should encourage enterprises to make prompt correspondence and also
improve national business environment in order to attract foreign investments, including
those from US.
Thirdly, laws to control goods from China should be set without delay to prevent
Chinese goods from flooding into Vietnam and take advantages of exchange rate, several
free trade policies or even lower tariffs. This can be controling origins from the customs,
adding more specifications for the quality of goods.
Besides, the most effective measures for Vietnam is to improve the competitiveness
itself. It is of essence to construct and better infrastructure system, encourage citizens to
enhance working capability by joining specialized vocational training, enhance
specialization and globalization to improve national competitive index.
Additionally, Vietnam should strengthen relationship with key partners all over the
world to gain supports and maintain prosperity during the US-China trade war.
For enterprises:
Along with FTAs and EVFTA, they should expanse their market as soon as possible
to make full use of these two agreements. Thanks to these agreements, they have
opportunities to export or import with low tax barrier, so they can easily bring their
products to the world.
Moreover, they should also carefully calculate loss from trade to make proper
measures for enterprises to avoid as much loss as possible.
Besides, enterprises should enhance their products’ quality to maintain market size
and market share when facing a huge number of imported goods from China.
Last but not least, enterprises should also have strategies to join the global supply
chain so as to reduce costs, improve efficiency and satisfy demands.

22
7. Conclusion
Generally, the US-China trade war roots from protectionism and it poses both risks
and oppotunites on the international trade, including Vietnam’s. The scale of impacts is
still unmeasurable because it modification is subject to each scenario of this war. To
minimize bad effects and maximize benefits from this trade war, both government and
enterprises should take actions together to solve problems emerging.

23
 REFERENCE
1. D. Dongsheng, G. Luft, D. Zhong, Why did Trump launch a trade war? A
political economy explanation from the perspective of financial constraints.
Economic and Political Studies, 7(2), 203-216 (2019)
2. Z. Suisheng, D. Guo, A New Cold War? Causes and Future of the Emerging US-
China Rivalry. Vestnik RUDN. International Relations, 19(1), 9-21 (2019) 3. S.I.
Dolgov, Y.A. Savinov, International trade: USA on the warpath. Russian
Foreign Economic Bulletin, (9), 7- 20 (2018)
3. C. Freund, M. Ferrantino, M. Maliszewska, M. Ruta, Impacts on global trade
and income of current trade disputes. Macroeconomics, Trade Investment (MTI)
Practice Notes, 2, 11 (2018)
4. Jianhong Lu, Xianqiang Mao, Mudan Wang, Zhengyan Liu, Peng Song, Global and
national environmental impacts of the US-China trade war , p.21-23(2018)
5. Y. Silin, L. Kapustina, I. Trevisan, A. Drevalev, China’s economic interests in the
“One Belt, One Road” initiative. SHS Web of Conferences: Innovative Economic
Symposium 2017 – Strategic Partnership in International Trade, 39 (2017)
6. UNCTAD Research Paper No.37
7. US Census Bureau, Trade in Goods with China [online], Available at: Link (2019)
Y. Deng, F. Pan, Dependence analysis of Sino-US trade. Journal of Physics:
Conference Series, 1176(4) (2019)
8. P. Legrain, Why China will win the trade war [online], Available at: Link (2018)
Statista, Total value of U.S. trade in goods (export and import) worldwide from
2004 to 2018 (in billion U.S. dollars) [online]
9. WTO Center. America sparked global trade tensions. Business news and trade
liberalization, Quarter II 2018
10. A.N. Da Costa, The early victims of Trump's trade war [online], Available at: Link
US Census Bureau, Trade in Goods with China [online], Available at : Link (2019)
9. V.V. Markov, China and the USA: From economic rivalry in Asia-Pacific to trade
24
 war. The Herald of the Diplomatic Academy of the MFA of Russia. Russia and the
World, 4(18), 110-119 (2018)
11. The Meaning and Definition of Foreign Trade or International Trade – Explained!
[online] Available at: Link[Accessed 14 May 2021].
12. What are tariffs? Definition and meaning [online] Available at:Link [Accessed 14
May 2021].
13. Difference Between Tariff and Quota [online] Available at: Link[Accessed 14 May
2021].
14. Trade Wars and their Effect on the Economy and You [online] Available at:
Link[Accessed 14 May 2021].
15. Pritesh Samuel, US – China Trade War Inspires Vietnam Growth Available at:
Link
16. Nguyen Hoang Tien, China-US trade war and risks for Vietnam’s economy,
Available at: Link
17. Robinson, S. and Thierfelder, K. (2019). 19-17 US-China Trade War: Both
Countries Lose, World Markets Adjust, Others Gain.
18. Steinbock, D. (2018). U.S.-China Trade War and Its Global Impacts. China
Quarterly of International Strategic Studies, pp.524–526.
19. USTR (2019). USTR Statement on Section 301 Tariff Exclusions on Chinese
Imports
20. Ministry of Commerce, People's Republic of China, Available at Link
21. Steven Bernard, 2019, US-China trade war gives Vietnam a winning streak, ,
Financial Times
22. Vina Capital,“US-China Trade Tensions and Vietnam”, 2018, Available at Link
23. Vietnam Insider, U.S. imposed duties of more than 400% on steel imports from
Vietnam, 2019, Available at Link

25