i

TASK ALLOCATION
No. Full Name Student ID Responsibilities
- Research analyzes the trade war overview
and theories of balance of payment.
1 Tăng Phan Trường 1912215569
- Support format file
- Write conclusion and lessons
- Research the Vietnam Balance of Payment
2 Nguyễn Công Minh 1912215277 before the trade war
- Write conclusion and lessons
- Research China’s balance of payment
3 Đỗ Hoàng Phúc 1912215397 during and after the trade war
- Support research on trade war
- Research Vietnam’s balance of payment
4 Đinh Kiến Vương 1912255443 during and after the trade war
- Support research on conclusion and lessons
- Team Leader – Allocate tasks
- Research Vietnam’s balance of payment
5 Nguyễn Tường Vy 1912255444 before the trade war
- Consolidate information and format the
assignment,
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TABLE OF CONTENTS
PREFACE .............................................................................................................................................................................. 1
CHAPTER 1: INTRODUCTION TO BALANCE OF PAYMENT AND TRADE WAR BETWEEN CHINA AND
THE USA ............................................................................................................................................................................... 2
1.1. Overview of the trade war between China and the USA ................................................................................... 2
1.1.1. Reasons led to the Trade war ......................................................................................................................... 2
1.1.2. Progress of the trade war ............................................................................................................................... 3
1.2. Introduction to the BOP in China and Vietnam ................................................................................................ 4
1.2.1. Introduction .................................................................................................................................................... 4
1.2.2. BOP accounting principles ............................................................................................................................ 4
1.2.3. BOP Statements.............................................................................................................................................. 5
CHAPTER 2: ANALYSIS OF CHINA AND VIETNAM BALANCE OF PAYMENT BEFORE AND AFTER THE
TRADE WAR ........................................................................................................................................................................ 6
2.1. Analysis of China’s BOP before the trade war period (2013 – 2018) .................................................................... 6
2.1.1. Current account ............................................................................................................................................. 6
2.1.2. Capital and Financial account .................................................................................................................... 10
2.2. Analysis of China’s BOP during and after the trade war (2018 – 2021) ............................................................ 12
2.2.1. Current Account ........................................................................................................................................... 12
2.2.2. Capital and finance account ........................................................................................................................ 14
2.3. Analysis of Trade war impact on Vietnam’s before the trade war (2013 – 2018)............................................... 15
2.3.1. Current account ........................................................................................................................................... 16
2.3.2. Financial account ........................................................................................................................................ 18
2.4. Analysis of Vietnam’s BOP during and after the trade war ................................................................................ 20
2.4.1. Current account ........................................................................................................................................... 20
CHAPTER 3: CONCLUSIONS AND LESSONS FOR VIETNAM IN INTERNATIONAL TRADE ....................... 24
3.1. Conclusion ................................................................................................................................................................ 24
3.2. Lessons for Vietnam................................................................................................................................................. 24
3.2.1. Greater diversification for the source of materials and export markets .................................................... 24
3.2.2. More subtle monetary policies: .................................................................................................................... 24
APPENDIX .......................................................................................................................................................................... 26
REFERENCES .................................................................................................................................................................... 30
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ABBREVIATION AND ACRONYMS

No. Abbreviation Full meaning
1 BOP Balance of Payment
2 CA Current Account
3 DI Direct Investment
4 FA Financial Account
5 FDI Foreign Direct Investment
6 FII Foreign Indirect Investment
7 FR Foreign Reserve
8 KA Capital and Financial Account
9 NX Net Export
10 OI Other investment
11 PI Portfolio Investment
12 RMB Renminbi
13 The US The United States
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LIST OF TABLES AND FIGURES

Figure 1. Correlation between FX reserve and China exchange rate .................................................................... 3
Figure 2. China's BOP from 2013-2018 (Unit: Million current USD) .................................................................. 6
Figure 3. China’s current account from 2013-2018 (Unit: Million current USD).................................................. 7
Figure 4. China’s Trade balance from 2013-2018 (Unit: Million current USD) .................................................. 7
Figure 5. China’s Export growth 2013-2018 ......................................................................................................... 8
Figure 6. China’s Export growth 2013-2018 ......................................................................................................... 8
Figure 7. China’s Service exports and imports in 2018 .......................................................................................... 9
Figure 8: China’s primary income 2013-2018 (Unit: Million current USD) ...................................................... 10
Figure 9: China’s Capital and Financial account 2013-2018 (Unit: Million current USD) ................................. 10
Figure 12: China’s financial account from 2013-2018 (Unit: Million current USD) ......................................... 12
Figure 13: Impact of China’s trade balance with other countries from 2017-9M2022 (Unit: Million current
USD) ..................................................................................................................................................................... 13
Figure 14:US income balance with China and total net inflows (outflows) from 2013-2021 .............................. 14
Figure 15: China’s balance of payment structure from 2012-2021 (Unit: Million current USD)....................... 15
Figure 16: Vietnam’s balance of payment structure from 2013-2018 (Unit: Million current USD) ................... 16
Figure 17: Vietnam’s trade balance from 2013-2018 (Unit: Million current USD) ............................................ 17
Figure 18: Vietnam’s financial account from 2013-2018 (Unit: Million current USD) ...................................... 19
Figure 19: USA import of goods from China and Vietnam from 2016 – 2022 (Unit: Billion current USD) ....... 21
Figure 20: China’s shifting trend of export and the impact on the current account of Vietnam (Unit: Billion
current USD) ......................................................................................................................................................... 22
Figure 21: FDI from China to Vietnam 2015 – 2021 (Unit: Billion current USD) ............................................. 23
Figure 22: VND/USD exchange rate and the increase in the official reserve account ......................................... 23

Table 1: Credit and debit accounts in the BOP ...................................................................................................... 5

Table 2: BOP Statements ........................................................................................................................................ 5
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PREFACE
When it comes to international trade, an important insight of international trade theory is that when two
parties, countries engage in voluntary trade, it is almost always beneficial to both countries involved regardless
of their disparities in wage level. However, by observation, many cases of trade and commercial disputes occur
on a daily basis and the cause is frequently that one party feels disadvantaged in the trade relationship. That case
is the same with the USA when they witnessed their large trade balance deficit with China over the year. After
acknowledging their disadvantages, they kickstarted a trade war with China, raising and imposing extraordinary
tariffs level on imported Chinese products. The war between the two powers has impacted many countries with
close economic relationships, including Vietnam, where the US is Vietnam's largest export partner and China is
its largest import partner.
Therefore, in this study, the authors will study the BOP, an index that provides a comprehensive account
of the economic relations between a country and the rest of the world to show the trade war’s impact on China’s
economy and how strongly it affects Vietnam. And in front of accusations made by the US against China, the
authors also hope to provide lessons for Vietnam to avoid violating the economic interests of other countries and
also to protect Vietnam in trade.
The primary sources of information used in this study's inclusion process are secondary sources having
material related to the research. Due to the fact that both China and Vietnam export significant amounts of goods
to the US, the information in the article primarily focuses on their respective balances of payments and the effects
of the trade balance. In addition, the information in the article will concentrate on the time frame from 2013 to
2021 to depict the changes in the trade balance of the two countries before and after the trade war occurred. By
focusing on China's trade, it will be simpler for the authors to relate to Vietnam's trade balance as Vietnam and
China share the same socioeconomic patterns.
By applying theory, secondary data, and empirical research, the authors have decided to choose the topic
“ANALYSIS OF THE TRADE WAR IMPACT ON CHINA AND VIETNAM BALANCE OF
PAYMENT”.
This report will have three chapters:
CHAPTER 1: INTRODUCTION TO BALANCE OF PAYMENT AND OVERVIEW OF THE TRADE
WAR BETWEEN CHINA AND THE USA FROM 2018 TO 2019
CHAPTER 2: ANALYSIS OF CHINA AND VIETNAM BALANCE OF PAYMENT BEFORE AND
AFTER THE TRADE WAR
CHAPTER 3: CONCLUSIONS AND LESSONS FOR VIETNAM IN INTERNATIONAL TRADE
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CHAPTER 1: INTRODUCTION TO BALANCE OF PAYMENT AND TRADE WAR BETWEEN
CHINA AND THE USA
1.1. Overview of the trade war between China and the USA
1.1.1. Reasons led to the Trade war
The trade war between China and the United States comes from the United States trade deficit with its
largest import partner, China. Demand for domestic goods plummeted, resulting in a sharp increase in job losses
in the United States, and the fact that goods were so cheap also led the United States to accuse China of
manipulating its domestic currency, keeping it at a low rate against the dollar for an extended period of time to
benefit exports. In addition, there are severe tariff regulations on "made in China" goods to help the US reduce
its reliance on Chinese exports.
It is no surprise that the United States’ domestic industries were struggling to compete with After China's
accession to the WTO, its economy has grown rapidly, and its international status has become more and more
important. China's competitiveness has become stronger and stronger, although no one will ignore the impact of
economic globalization on developed countries led by America. Since China's WTO accession, US Treasury
officials have repeatedly said the yuan is undervalued, and both finance officials have repeatedly discussed
currency issues.
Everything started in 2005 when China decided to open up further to the world, including further reforms
to the exchange rate system, making the RMB exchange rate system more international as well as marketized, in
order to better reach the international community and to better deliver on WTO commitments. Based on the
national and international circumstances at that time, the central decision was made to establish a "market
regulation based, regulated, floating exchange rate system with reference to a basket currency".
After the central bank introduced a new exchange rate system in 2005, the Yuan against the US dollar
began to enter the stage of accelerated decline, compared with the previous year's percentage increase year by
year. It reached a peak of 9.5% in 2008. After 2008, the exchange rate of the Yuan against the US dollar was still
in a downward trend, but the rate of decline was no longer increasing, which was in a state of fluctuation.
Until 2012, the exchange rate of Yuan against the US dollar increased for the first time. After that, the
exchange rate of Yuan against the US dollar depreciated for five consecutive years.
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Figure 1. Correlation between FX reserve and China exchange rate

The key point is that, though BOP (or FX Reserves) remains at a high level, the renminbi had been
depreciating to US Dollars since 2012 and the exchange rate fluctuated at greater momentum. This raised
questions for Trump’s government about China’s currency manipulation. The gap between the net exports of the
US into China has been negatively expanding since the 21st century. With the above-described trading pattern
between China and the U.S, it is no surprise that the US’ domestic industries were struggling to compete with
cheaper importing Chinese products. This threatened the U.S economy, shown by the increase in income and
education gap – where the wealthy and talented people benefited from free trade and globalization while there are
“losers” that are unable or unwilling to adapt to the emerging affluent and cosmopolitan world order and revolt
against it.
However, not until Donald Trump’s presidency, that the problem was taken into serious consideration.
Trump won the 2016 presidential election using slogans such as Make America Great Again and America First,
both of which aimed to woo voters living in regions most affected by deindustrialization processes and at a lower
level of development – the direct victim of free trade. He imposed tariffs and restrictions on imported Chinese
goods to protect domestic industries while creating more jobs for the residents – which in turn, cause the trade
war that is nowadays known.
1.1.2. Progress of the trade war
After taking office in January 2017, Donald Trump initiated talks with China in order to resolve economic
differences without resorting to a trade war. On April 6, 2017, President Trump met with Chinese President Xi
Jinping. The two presidents agreed on a new 100-day plan for trade talks, which allowed them to come up with a
solution that worked for both countries. Initially, the two countries reached some mutual agreements, such as
signing a preliminary supply agreement, and China agreed to open its market to American beef, biotechnology
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products, liquefied natural gas, and financial services. However, after these moves, the two countries are not
making any new progress, while the U.S‘s trade with China did not stop “bleeding”.
On July 6th, 2018, The US began the war by imposing 25% tariffs on approximately US$34 billion in
Chinese imports, including automobiles, hard disks, and aircraft parts. China retaliated by imposing a 25% tariff
on 545 US-made goods worth $34 billion, including agricultural products, automobiles, and aquatic products.
Over the next 17 months, from August 2018 to May 2019, the Trump administration-imposed customs fees
ranging from 7.5 to 25 percent on an additional $216 billion worth of Chinese goods, while Beijing responded
with additional tariffs ranging from 5% to 25% on $76 billion worth of US goods. Apart from customs policy,
US sanctions against Chinese business titans have become an important vector of the federal government's efforts.
On May 15, 2019, President Trump issued an executive order authorizing the US Department of Commerce to
prohibit Huawei from selling telecom equipment and services in the US. The Chinese company, along with 70
affiliates, was added to the so-called Entity List, which barred them from doing business in the United States
unless they obtained a special license.
Several talks between the two countries’ leaders have been initiated since the trade war began in 2018 like
the phase-one trade deal that was signed in 2020 to prevent the war from escalating. However, the deal was only
able to delay the war, not eliminate it. Despite the reduction in tariffs and extension for the movement of goods
licenses, these tariffs still remained until today while the war seems to be heated up again in 2022 with the most
recent ban of the US on microchip companies in China from buying advanced chips or chip-making equipment
without a license and prohibiting U.S citizens to work for Chinese technological companies.
1.2. Introduction to the BOP in China and Vietnam
1.2.1. Introduction
Vietnam and China both followed the BPM6 issued by the International Monetary Foundation (IMF) on
the definition of BOP as a statistical report that summarizes transactions between residents and non-residents
during a certain period of time and be constituted by such components as Current Account (CA), Capital and
Financial Account (KA), Errors and Omissions (E), and Official Foreign Reserve (FR). (Details in Appendix 02).
1.2.2. BOP accounting principles
Economic transactions that occur throughout a period are documented in accordance with the Double
Entry Bookkeeping ensuring that the entire balance of the BOP balance is zero. International transactions
including payments to a resident in exchange for anything brought back home result in a Debit (-), but payments
to the country in exchange for something result in a Credit (+).
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Table 1: Credit and debit accounts in the BOP

Transactions Credit Debit

Current Account (CA)
- Including NX, Net Income, Net Export/Received Import/Paid
unilateral transfer

- Inflows of capital and finance - Outflows of capital and finance

Capital and Financial Account
- Increase in assets of domestic - Decrease in assets of domestic
(KA)
- Decrease in assets of foreign - Increase in assets of foreign
- Including FDI, FPI, ODA...
resident resident

Change in Foreign Reserve (FR) Decrease in reserve Increase in reserve

1.2.3. BOP Statements

In keeping the BOP balanced, the sum of all accounts must be equal to zero, giving the equation that:
CA + KA + E + ΔFR = 0 (1)
According to equation (1), BOP reaches equilibrium when there are no errors and omissions in record
transactions and the foreign reserves are not depleted, resulting in the CA = - KA, which is explained by net
exports and capital outflow were equal, which is the condition of an economy where foreign spending and
investment are equal to the spending and investment of other countries in the country itself during a given period.
Nonetheless, there are 05 situations where CA does not cover by KA, leading to respectively 05 BOP
Statements illustrated:
Table 2: BOP Statements

Account Situation 1 Situation 2 Situation 3 Situation 4 Situation 5

CA NX > Capital NX < Capital Surplus Deficit

Equal
KA outflow outflow Surplus Deficit

BOP Balanced Surplus Deficit Double surplus Double deficit

ΔFR Unchanged Increase Decrease Increase Decrease

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CHAPTER 2: ANALYSIS OF CHINA AND VIETNAM BALANCE OF PAYMENT BEFORE AND
AFTER THE TRADE WAR
2.1. Analysis of China’s BOP before the trade war period (2013 – 2018)
Figure 2. China's BOP from 2013-2018 (Unit: Million current USD)

Over the period given, China's BOP was in surplus, and the main contributor was the current account.
During this time, China transitioned from importing and utilizing foreign investments to aggressive exporting and
investing abroad due to the "Attracting Foreign Investment" policy and the "Belt and Road" strategy from
officials, leading to a large current account surplus and a capital and financial account deficit from 2013 to 2015.
However, as China reduced its budget for overseas investment from 2016 to 2018, the capital and financial
account rebounded to be in a surplus situation.
2.1.1. Current account
Before the trade war with the USA in July 2018, China's current account experienced a surplus and reached
its peak in 2015 with approximately 2,930 million current US$. The main contributor to its current account surplus
was the trade balance. This pattern was evident as China accounted for a significant global goods and service
export share. By observation, we could see that China products were present in many places around the world.
(Figure 1). Meanwhile, income balance accounted for a tiny proportion of the current account.
A country with a current account surplus has more exports and incoming payments than imports and
outgoing payments to other countries. It is generally positive because a current account surplus likely increases a
country's reserves. However, its currency may face upward pressure, and China may take steps to limit currency
appreciation to maintain export competitiveness.
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Figure 3. China’s current account from 2013-2018 (Unit: Million current USD)

2.1.1.1. Trade Balance

The trade balance account is divided into two smaller sections: goods balance and service balance. Figure
4 shows the inverse trend of these two sections. During the period given, the goods balance was always in surplus,
but the service balance was always in deficit.
Figure 4. China’s Trade balance from 2013-2018 (Unit: Million current USD)

Over five years, the total goods exported was XXX in more than ten countries. The products that China
exported the most were broadcasting equipment, integrated circuits, and office machine parts, with growth rates
of 97,3%, 108%, and 151%, respectively. Besides, China's leading destination for export was the United States,
with a percentage of growth of 26,9%. The United States became the largest importer of China products. Looking
into the details, we noticed that China's goods trade had many ups and downs. China's merchandise export share
was 14% in 2015, but it has gradually declined since early 2017, and it has continued to fall as a percentage of
 8
GDP, falling from 9.2% in Q2 2015 to 6.8% in Q4 2018. This drop could explain that China was losing
competitiveness compared to fast-growing Asian countries like Vietnam, Thailand, and others. In addition, China
was accused by the United States of manipulating currency to gain trade advantages.
Figure 5. China’s Export growth 2013-2018 Figure 6. China’s Export growth 2013-2018

In terms of service balance, spending by foreign visitors is counted as a service export, while domestic
residents' travel abroad is counted as a service import. In early 2015, the statistical authorities began using
information from credit and debit card transactions to improve estimates of money spent abroad. In 2018, China
ranked 42nd out of 111 countries in travel spending per capita—and 41st out of 111 countries in U.S. dollar GDP
per capita. As it is, China's large population and economy made its total travel imports the largest in the world.
To be detailed, the growth in travel by Chinese residents has been relatively rapid, with the number of outbound
trips nearly tripling since 2010. The growth in travel seems not very surprising when considering the rapid growth
of China's economy. Per capita income has doubled since 2010, from $4,500 that year to $9,600 in 2018. China's
rapid urbanization has also been a supporting factor since city dwellers are more likely to travel abroad.
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Figure 7. China’s Service exports and imports in 2018

2.1.1.2. Income balance

The net income balance was negative and correlated positively with the net primary income. China has
two smaller accounts in primary income: employee compensation and investment income. While investment
income fluctuated over time, employee compensation changed little from year to year. From 2013 to 2018, China
promoted overseas investment in addition to utilizing foreign investments and welcomed many foreigners who
fled to the country for work, resulting in significant amounts of China dividends and interest paid to foreigners.
However, despite a decrease in both inward and outward FDI between 2016 and 2018, investment income
remained deficient for a variety of reasons, necessitating additional research into this phenomenon.
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Figure 8: China’s primary income 2013-2018 (Unit: Million current USD)

2.1.2. Capital and Financial account

Figure 9: China’s Capital and Financial account 2013-2018 (Unit: Million current USD)

The financial account was in deficit from 2013 to 2015, but it was in surplus from 2016 to 2018. This
phenomenon demonstrates that during the first three years of the period, China encouraged overseas investment
and the development of a portfolio of investments with expected returns of interest, profits, and dividends that
were not dependent on FDI. In the three following years, China had more inward investment due to the openness
of the financial market and policies that made doing business in this economy easier.
2.1.2.1. Foreign Direct Investment
According to the FDI market, the number of projects in China decreased over time from 1063 projects in
2013 to 837 projects in 2018. It could be explained by the country’s strategy desire to move away from a broad
and diversified FDI picture toward a more concentrated mix of just a handful of foreign multinationals that are
driving the total investment value. Besides, the rising tension with the US during that time made foreigners cut
 11
back on direct investment, illustrated by the sharp drop in the inward FDI in Q3 2018. To cope with that situation,
China was implementing policies attracting more foreign investment. For example, there was a rule for carmakers
needed to set up a joint venture with a local but due to the liberalization of FDI regulations, carmakers would set
up manufacturing without setting up a joint venture. As direct investment is considered “sticky” money, it can
be a safeguard against fluctuations in other, more volatile components of the capital account. Moreover, a sizable
FDI surplus can be viewed as a vote of confidence for the country and the currency.
Outward foreign direct investment (FDI) was an important contributor to capital outflow as it was used as
a disguise to shift capital abroad. In 2014, foreign investment supervision has been relaxed. The State Council,
the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the
Foreign Exchange Bureau have successively issued a series of regulations and policies related to overseas
investment, further simplifying. However, from the end of 2016, the Chinese government introduced restrictions
on OFDI with further regulations and guides, aiming to optimize the foreign investment structure and improve
authenticity and compliance of OFDI while effectively reducing various risks leading to the reverse trend in OFDI
since 2013.
2.1.2.2. Foreign Indirect Investment
Portfolio investment has historically played a minor role in China's BOPs, but now this situation is rapidly
changing. After years with a small but consistent net inflow, the portfolio investment balance fell sharply in 2015.
Since the middle of 2017, it has experienced a remarkable turnaround, with foreign portfolio inflows totaling
$247 billion over the last five quarters. Domestic portfolio outflows have also recently slowed.
Inward bond investment has been the most significant contributor to foreign portfolio inflows which has been
boosted by the introduction of a new bond trading platform in 2017. Bond Connect, as it is known, enables
qualified foreign investors to purchase onshore Chinese bonds via Hong Kong. Notably, there are no fixed quotas
and no requirement for investors to specify the amount of their investment. Record inward bond investment
suggests institutional investors are eager to take advantage of this new channel. Foreign investors' interest in
Chinese bonds is part of a more significant trend. Despite having the world's second-largest economy, China has
been largely absent from global financial market indices. China has been aggressively opening its capital markets
to foreign investors recently.
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Figure 10: China’s financial account from 2013-2018 (Unit: Million current USD)

2.2. Analysis of China’s BOP during and after the trade war (2018 – 2021)
2.2.1. Current Account
2.2.1.1 Trade balance
As the name of the conflict between the two countries, the trade-war. The first affected factor in economics is
trade. Economically, Washington and Beijing saw a significant drop in the total value of bilateral trade flows as
a result of newly imposed customs tariffs. The pattern clearly shows a significant decline in trade value that began
to take place since July 2018, compared with the previous period. It took for nearly 2 years, up until the beginning
of January, when both countries decided to lift up some restrictions, that trade value began to rise again.
However, the war between the US and China seemed to have little effects on the trade balance of China, or
we can say inverse effects. The Current account of China was only low for two years 2018 and 2019 because of
uncertainties raised from the war. It quickly recovered two years later and even increased compared to the level
before the trade war. The hit was not even strong in 2019. As illustrated from the chart below, the net export value
from China to the US fall in 2019, however, it increased in other regions to compensate for the “loss” from its
main partner.
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Figure 11: Impact of China’s trade balance with other countries from 2017-9M2022 (Unit: Million current
USD)

Back in 2018, when the first flame of the war burned, China’s trade balance was “only” 87.9 billion US
dollars, lower than approximately 130 billion US dollars in 2017. However, it was not because of Trump’s
warnings. The US even imported the largest amount from China in 2018 with deficits of 323 billion USD dollar
(according to the General Administration of Customs People’s Republic of China report). This amount was even
418.233 billion US dollars according to the U.S. Census Bureau. The reason led to this decrease in trade balance
of China came from lower net exports to other countries and regions such as Asia countries (-70 billion USD),
Latin America region (-12.87 billion USD), Africa (-13.15 billion USD) and Russian Federation (-12.54 billion
USD).
In 2019, when it was at the peak of the conflict, under lots of restrictions, the value of bilateral trade flows
dropped and trade deficits for the US were smaller. However, it was not in the case of China’s trade balance when
it continued to be positive and even increased compared to 2018. The reason was simple. Its exports decreased to
the US (decreased 27.37 billion USD) and increased to all other countries (APEC members: +26.12 billion USD;
Europe: +27.45 billion USD; ASEAN: +26.77 billion USD; Vietnam: +13.79 billion USD; …).
Nevertheless, the deficit trend in bilateral trade between China and the US has risen back since 2020 due to
undisputable demands for China’s products in the US. The trade surplus with the US expanded to 7.07% YoY in
2020 and 25.14% YoY in 2021. To be exact, this is not completely a consequence of the trade war but also China’s
stability during Covid-19 thanks to zero-covid strategy. During Covid-19 pandemic, China has controlled the
expansion of viruses and tried to protect its domestic economy and activities. Therefore, it could export more
products in the reserve situation when manufacturing and logistics activities over the world were restricted. Those
factors led to a trade balance surplus of 358.6 billion US dollars and 462.8 billion US dollars in 2020 and 2021
respectively. In addition, perhaps the restrictions and imposes on import taxes were motivations for China to seek
alternative markets. Since the beginning of the trade war, net exports from China into other large regions have
also increased. While the US had to take time to reallocate and re-set up manufacturers in other low-cost countries
 14
such as Vietnam and India, it was an obvious chance for China to capture the cake and penetrate into other markets
when conflicts get softer.
2.2.1.2. Income balance
In terms of primary and secondary income, trade-war since 2018 seemed to trigger the withdrawal waves of
those two accounts. They decreased significantly and contributed a large number of cash outflows as non-resident
dividends or interests were received. Note that decreases in primary and secondary were not from US firms’
losses. According to the International Transactions report (Bureau of Economic Analysis), in bilateral relations,
the US income balance with China as primary and secondary income remained stable over years. While the total
currency outflows as primary and secondary income of China tended to have greater loss orientation since 2018.
Particularly, both income receipts for US and China firms operating on the other side increased over time
dedicating that the business environment for their enemy’s firms was actually not really arduous. However, even
though China’s economy was increasing well at that time, the income for foreign firms gets more and more loss,
or recognize as a deficit in the current account. This trend tended to be extending until nowadays. There is neither
deep research nor data interpretation relating to these issues in China’s market.
Figure 12:US income balance with China and total net inflows (outflows) from 2013-2021

As proved above, US-China trade restructured China’s BOP in both short-term and long-term contexts. In the
short term when conflicts were happening, the trade balance of China had narrowed in lower trade surplus.
However, it created chances for China to find out other markets. As consequence, net exports rose back since
2020 in direction of higher trade surplus in many regions and countries.
Besides, uncertainties in China and the US situation led to the result that investment gain and receipts flew
out of China in 2019. Perhaps foreign firms were not sure about the long-term effects, so they did not reinvest in
China. The only problem is that this amount was not originally from the US firms.
2.2.2. Capital and finance account
 15
As illustrated in the BOP structure of China below, we can notice that one of the main sources of dollar
inflows is FDI. During the trade war, the amount of FDI inflows in China seemed to be lower than in the past
since 2012. However, in general, it was still higher than near-previous years before the war. In the bilateral
relation, obviously, the direct investment from the US to China has been lower and lower since 2018. In reserve,
the total net FDI into China has been increasing since then. There are many reasons for this consequence. One of
big ideas is US firms did not invest in China through their own US legal but under other legal entities in zero or
low corporate tax such as Singapore, British, Virgins, … In conclusion, since trade-war, US firms did not invest
in the high value into China due to some restrictions. The direct investment, however, still increases dedicating
that many other countries, or even US firms, are trying to operate in one of the most dynamic economies in the
world
Figure 13: China’s balance of payment structure from 2012-2021 (Unit: Million current USD)

.
2.3. Analysis of Trade war impact on Vietnam’s before the trade war (2013 – 2018)
Due to the combination of the financial account and capital account, there is just an insignificant record
in the capital account in Vietnam. Therefore, BOP in Vietnam BOP, the authors focus on two components: the
current and financial accounts.
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Figure 14: Vietnam’s balance of payment structure from 2013-2018 (Unit: Million current USD)

BOP in Vietnam has witnessed surpluses over the period, with a total value of 29,865 million USD.
Overall, BOP was always positive, except in 2015, a 2,039.38 million USD deficit was due to excess imports over
exports.
The drivers in Vietnam’s BOP surplus are varied and shifted over the years. For example, prior to 2011,
the surplus in BOP was mainly due to the large FA surplus, as Vietnam first opened the door in 2007 by becoming
a member of WTO (World Trade Organization), which helped attract sizeable FDI inflows. In 2013 and 2014,
CA was the main contributor to the surplus of the BOP. However, after a considerable deficit in 2015, FA was
again the main contributor.
2.3.1. Current account
Equilibrium trade and income balance on a variable equilibrium variable format for the period 2013 -
2018. After peaking in 2020 at a value of 12.95 billion USD, the hybrid drag balance fell sharply and reversed in
2021 with a value of - 3.94 billion USD. The weight surplus contributes a lot to economic growth and offsets the
gap between domestic savings and investment in Vietnam. In the period of 2016 - 2020, only in 2017, when the
balance was reset, domestic savings were smaller than domestic investment. In the rest of the years, the balance
was equal, reflecting savings greater than investment. domestic investment. That is to say, a portion of domestic
savings has been used to invest abroad. In fact, policymakers often prefer domestic savings to be spent on
domestic investment rather than offshore investment, as returns from domestic consultants can easily be taxed.
than income from overseas production accounts. Add to that, plug-in that adds to domestic investment from
savings, can reduce unemployment, increase national income and create technology spillovers for manufacturers.
output address content.
 17
2.3.1.1. Trade balance
After the crisis in 2008, the current account only started to be in surplus in 2011 due to the general recover
of the economy of the world and good management of the government. Especially in 2014, due to the existence
of Samsung, CA had increased rapidly – nearly 50% compared to the previous year (12,126 million USD in 2014
compared to 8,713 million USD in 2013). Specifically, Samsung had invested nearly 26.3 billion USD, accounting
for about 17.48% of export turnover (GSO). So, the trade balance of goods is always in surplus in the period of
2013-2018. On the other hand, the trade balance of services is always in deficit. The reason that Vietnam has a
small portion of trade in services, and import of service is much more than the import due to the cheap services
in Vietnam. It was reasonable in that time because we focus more on manufacturing sectors, we do not have
modern technologies, we had low skilled-labor, and our infrastructure is not very developed compared to
developed countries like the US, the UK, and many countries in Europe.
Trade balance: In terms of the trade balance by countries, in 2021, the US is Vietnam's largest export partner
with a merchandise surplus of US$80.1 billion in 2021, 6.82 times higher than Vietnam's surplus and accounting
for nearly 22% of Vietnam's GDP in 2021. (General Statistics Office, 2022). The trade surplus between Vietnam
and the US increased over time has caused the US side to raise the issue of balanced trade relations and was
accused of currency manipulation many times. On the other hand, China is Vietnam's largest import partner, with
a trade deficit of 54 billion USD in 2021 (GSO, 2022). Many raw materials, Equipements and machinery for
domestic production was imported by China
Figure 15: Vietnam’s trade balance from 2013-2018 (Unit: Million current USD)

2.3.1.2. Income balance

Vietnam's income balance is divided into two clear directions: deficit primary income balance and surplus
secondary income. Deficit primary income shows that the payments for investments in Vietnam are much larger
than the income received from Vietnam's investment abroad (nearly 20 times over the whole period). The level
 18
of payment for foreign investment in Vietnam in the period 2013 - 2018 is more than 79.3 billion USD.
Meanwhile, Vietnam's income from overseas investment only reached 4 billion USD. This deficit has caused
Vietnam's current account surplus to drop considerably.
Primary income: The reasons for the deficit in primary income are Vietnam prefer more domestic saving
than investments to foreign. The returns on domestic capital may be easier to tax than those on abroad assets.
Therefore, we have to pay dividends, interest abroad as many countries and projects flocked into Vietnam, many
foreigners work in Vietnam. However, Vietnam does not invest in many projects and countries, so the primary
income receipts are small.
In contrast to the status of the primary income balance, the secondary income balance, or net unilateral
shift, of Vietnam is consistently in surplus, with an average of about 8.6 billion USD per year. This is possible
because the annual number of remittances flowing to Vietnam is quite large. From 2013 to 2018, the remittance
inflow accounted for 6% to 8% of Vietnam’s GDP. This portion is much higher than the remittance inflow in
developed countries, from 1% to 2%.
2.3.2. Financial account
2.3.2.1. Direct Investment (DI)
The FA records transactions related to investment, borrowing and lending of Vietnam with foreign non-
residents. The FA was much smaller than CA in 2013 and 2014, but from 2015, after BOP was in deficit, FA
started to be the main contributor to the surplus of BoP in these later years in this period. The difference reached
a peak of nearly 22,000 million USD in 2017 (While FA was 20,027 million USD, CA was -1,650.87) due to the
rapid growth of FDI and FII. FII capital flew strongly into Vietnam’s stock market with the net buying value of
foreign investors in two channels of bonds and stocks in the first three quarters of 2017, estimated at 1.4 billion
USD. The financial surplus in Vietnam ranged from minus 281 million USD to about 20 billion USD per year,
which was unstable due to the country's continued unpredictable international capital flows.
 19
Figure 16: Vietnam’s financial account from 2013-2018 (Unit: Million current USD)

Financial Account has 3 main contributors: direct investment (DI), foreign indirect investment (FII), and
other investment (OI), as shown in the chart below. In Vietnam, DI flows tend to be the most stable among the
three investment flows, and OI flows are the least stable.
DI shows the Vietnamese attractiveness to international capital flows in recent years. DI was the most
stable flow among the international investment flows in Vietnam. In direct investment, the inflow is the foreign
direct investment in Vietnam (FDI takes the most portion in DI), and the outflow is the direct investment from
Vietnamese investors to other countries. DI maintained a surplus stable of around 10,000 million USD, which
takes the most percentage of the surplus of the Financial Account from 2014 to 2018. In the period 2013-2018,
total DI inflows were 11 times higher than DI inflows, and most of the excess of inflow over outflow was in the
period 2016-2018. This is the third wave of investment due to Vietnam’s participation in WTO. Many foreign
projects with more than 1 billion USD capital registered had been launched such as: Samsung Display Vietnam
(1 billion USD, 2014), Yen Phong Industrial Park 1 (2,4 billion USD). Also in this period, FDI was always the
highest component in DI as well as in the financial account. FDI steadily increased by 1,000 to 2,000 million
USD by year. The increase in FDI and DI shows the attractiveness of Vietnam’s economy and ensures that
Vietnam will have enough resources for its economic growth. However, it will cause Vietnam to be dependent to
FDI, and Vietnam will also be under pressure to pay a lot of money to foreign investors.
2.3.2.2 Portfolio Investment (FII)
Foreign indirect investment (FII) decreased incredibly in 2014 and maintained under 1,000 million USD
for 3 years. By stabilizing the politics and economic growth, and signing the Free Trade Agreement (FTA), FII
increased nearly 1000% in 2017 and continued to grow at 50% in 2018. The growth of FII was also the result of
the third wave of investment due to Vietnam’s participation in WTO. That many foreign projects had been
registered with over 1 billion USD in the capital in the period 2014-2018 was a positive point in Vietnam’s
 20
financial market. Although FII was not as much as FDI, it also significantly contributed to the surplus of BOP
and economic growth.
Other investments (OI) are the most unstable account. In 2013-2018, It abnormally fluctuated with a min
value of -9,457 million USD and a max value of 4,338 million USD. OI was negative all the time except in 2017,
when the economic situation of Vietnam was stable and grew well. The huge deficit in this account is the main
reason for the deficit of the Financial account in 2013 when 2 left accounts were in surplus (DI: 6,944 million
USD; FII: 1,461 million USD; OI: -8,686.18 million USD)
2.4. Analysis of Vietnam’s BOP during and after the trade war
2.4.1. Current account
As the trade war between the United States and China heats up, numerous reports and analyses suggest
that Vietnam stands to benefit the most from the fallout. One major advantage Vietnam achieved as a result of
the trade war is its ability to capture the Chinese’s market share in the U.S export market. Firstly, besides China,
Vietnam was also one of the largest exporters of the United States. For instance, in 2016, before the trade war
began, Vietnam was already ranked in the top 16 for exporting value to the US with 43.3 $ billion (United States
Census Bureau, Bureau of Economic Analysis, 2016). Thanks to the similar geographical position, we also
exported to the US the same product that China offered: agricultural and garment products, which helped us a lot
when Chinese products became more expensive due to the tariffs imposed. Looking at figure 19, we can clearly
see evidence of rising export value from Vietnam to the US in the period when the trade war began to take place.
Prior to the trade war, our monthly export value to the US was only around 4-5 $ billion, this number was 6 $
billion in 2019, 9 $ billion in 2021, and kept increasing after the trade war began. US importers have started to
switch their import partners from China to Vietnam to search for more affordable products, and thus, improved
our trade balance a lot.
 21
Figure 17: USA import of goods from China and Vietnam from 2016 – 2022 (Unit: Billion current USD)

On one hand, Vietnam succeeded in partly replacing China in exporting goods to the US. However, on the other
hand, Vietnam has also become a transit station for Chinese goods to the world with a “Made in Vietnam” title.
When FDI manufacturers entered Vietnam, despite locating their factories inside our territory, they still relied
upon foreign countries, especially China, for their raw materials and commodities supply, which in the end,
worsened our trade balance. From only a $ 2 billion monthly deficit in 2016 and 2017, Vietnam nowadays suffers
from a $ 4 – 6 billion trading deficit a month with China. An additional effect of China losing its US export market
was the increase in its domestic consumption of Chinese goods, which also reduced our export value and thus,
further increased the deficit.
 22
Figure 18: China’s shifting trend of export and the impact on the current account of Vietnam (Unit: Billion
current USD)

2.4.2. Financial account

Another major benefit we received from this war was the inflow of capital thanks to the shifting of large
manufacturers. Previously, China was famous for its title: “World’s workshop” when most manufacturing
companies around the world located their factories there to take advantage of the cheap labor cost and large
material sources of China. However, due to the trade war, Chinese-origin products were no longer competitive
and these multinational companies have to find a new strategy. In the end, they found a new heaven: a nearby
country with a large young workforce while also being very accessible to their material regions. Therefore, with
supportive policies for foreign investors, Vietnam managed to attract a lot of foreign direct investment (FDI),
especially from China manufacturers – who wanted to remove the “Chinese-origin” title. During the 2015 – 2018
period, China’s FDI to Vietnam only increased with a compound annual growth rate of 10% a year. This number
has been accelerated to about 20% a year during the 2018 – 2021 period, especially in the year 2019, when the
trade has just begun, and investors were fearful of an increasingly escalating war.
 23
Figure 19: FDI from China to Vietnam 2015 – 2021 (Unit: Billion current USD)

While the inflow of FDI seemed to be beneficial in the short run, an excessive amount of it caused our
country to be food poisoned. Due to Vietnam's limited production infrastructure and raw material quality, there
are concerns about the country's ability to fully absorb and capitalize on the increasing FDI inflow from the trade
war. Currently, Vietnam's supply chain and infrastructure networks are reportedly only comparable to those of
China a few years ago. In fact, Vietnam is starting to realize that expectations far outstrip reality. More and more
companies are complaining about congested ports and roads, skyrocketing land prices and labor costs, and
regulations that are not being eased quickly enough.
Figure 20: VND/USD exchange rate and the increase in the official reserve account
(Unit: Million current USD)
 24
CHAPTER 3: CONCLUSIONS AND LESSONS FOR VIETNAM IN INTERNATIONAL TRADE
3.1. Conclusion
We frequently assumed that a trade war would cause significant harm to China's economy; however,
according to the authors' analysis, the trade war's harm lasted for a short amount and did not bring much impact
on the economy. The United States consistently imposed high tariffs on imported Chinese products during the
war and accused China of currency manipulation, which led to bewilderment for foreign investors in China and
caused them to withdraw their investments from China. Thanks to the high demand for Chinese products in the
United States and the fast-changing economic strategy such as shifting merchandise to other emerging countries,
China quickly rebounded, and even during the war, the decrease was not significant.
Moreover, the authors saw that the impact of trade war not clearly stipulated as the duration
From Vietnam's perspective, the trade war has provided an opportunity for the country to promote its
exports to the US market while also attracting more capital investment from abroad, particularly investment from
Chinese enterprises that are attempting to change the origin of products produced in the Vietnamese market to
avoid tariffs. However, such a large investment imposes several constraints, for example, increasing deficit trade
with China, or the inability of domestic capacity, and infrastructures to meet the production needs of other foreign
firms,
3.2. Lessons for Vietnam
3.2.1. Greater diversification for the source of materials and export markets
Building a sustainable economic partnership is a good thing for countries, but in the case of the US before
the trade war, they were largely dependent on commodities imported from China. Even with strong tariffs on
goods made in China, it is not possible to immediately reduce the demand from the American giant. As the data
in the article plainly reveals, despite being in the first year of the trade war, with various tariffs imposed on
Chinese imports, the US trade surplus with China continues to hit a new peak, 323 billion US Dollars in 2018.
Demonstrating that the US has struggled to reduce its reliance on China. From this point, Vietnam should learn
how to reduce too much dependence on a country for the supply of raw materials or as a major export market,
because a dispute can have a huge impact on Vietnam's trade balance.
3.2.2. More subtle monetary policies:
From the analysis above, the fixed exchange rate really has many advantages for an economy (After the
central bank introduced a new exchange rate system in 2005, the Yuan had increased from 2005 and reached the
peak of 9.5% in 2008), but it also does harm to flexible exchange rate regime - the USA when the central bank
can easily control the exchange rate for their country’s benefit. China is a representative of this negative behavior,
while their currency is in a trend of appreciation, it suddenly changed to be in fluctuated from 2008 to 2012 and
began to be depreciated in 5 consecutive years. This action is quite apparent that China had controlled their
currency’s value compared to the US dollar. As a result, Chinese goods turned out to be significantly cheaper
 25
than domestic goods in America. Because of this phenomenon, America accused China of currency manipulation,
and had enacted many tariffs and restrictions on imported Chinese goods, which led to the trade war. Vietnam
followed the fixed exchange rate regime. We can get benefits from that regime, but we have to be careful when
adjusting the exchange rate to avoid being accused of currency manipulation, which may lead to many tariffs and
punishments from the flexible exchange regime country - the USA.
 26
APPENDIX
Appendix 1: Detailed events of China and U.S trade war (Last update: 05/07/2022)
Date
Event
(DD/MM/YYYY)
US-China trade war begins as US imposes 25 percent tariffs on US$34 billion worth
06/07/2018
of Chinese imports
China retaliates by imposing 25 percent tariffs on 545 goods originating from the US
06/07/2018
worth US$34 billion
Washington imposes 25 percent tariffs on a further US$16 billion worth of Chinese
23/08/2018
goods
23/08/2018 China responds by applying 25 percent tariffs on US$16 billion worth of US goods
24/09/2018 US places 10 percent tariffs on US$200 billion worth of Chinese imports
24/09/2018 China responds by placing customs duties on US$60 billion worth of US goods
Xi Jinping and US counterpart Donald Trump call a truce in the trade war at the G20
01/12/2018
summit in Argentina
After trade negotiations break down, US increases tariffs on US$200 billion worth of
10/05/2019
Chinese goods, from 10 to 25 per cent
15/05/2019 US Department of Commerce announces the addition of Huawei to its “entity list”
31/05/2019 China announces plans to establish its own “unreliable entity list”
01/06/2019 China increases tariffs on US$60 billion worth of US products
Xi Jinping and Donald Trump again agree to a trade war truce, this time at the G20
29/06/2019
summit in Japan
05/08/2019 US designates China as a “currency manipulator”
US announces that various planned levies on US$455 billion worth of Chinese
13/08/2019
products have either been delayed or removed
China announces planned tariffs of 5 and 10 percent on US$75 billion worth of US
23/08/2019
goods
01/09/2019 US tariffs on more than US$125 billion worth of Chinese imports begin as expected
11/09/2019 US agrees to briefly delay new tariffs on US$250 billion worth of Chinese goods
US announces that it will delay a planned tariff increase of 25 to 30 per cent on
11/10/2019
US$250 billion worth of Chinese goods
15/01/2020 China and the US sign the phase-one trade deal
 27
Date
Event
(DD/MM/YYYY)
China halves additional tariffs on US$75 billion worth of American products imposed
14/02/2020
in 2019
China announces a second batch of trade-war-tariff exemptions covering 79 American
12/05/2020
products
14/05/2020 China allows imports of barley and blueberries from the US
Dozens of US imports from China are granted short extensions to previous tariff
01/09/2020
exemptions
US customs agency issues “withhold release orders” banning cotton, apparel, hair
14/09/2020
products and computer parts from four Xinjiang companies
China decides to exempt additional tariffs on a batch of 16 US products for another
15/09/2020
year
US government says it will begin to block the import of all cotton products made by
02/12/2020
the Xinjiang Production and Construction Corps (XPCC)
US president-elect Joe Biden tells The New York Times he will not make any
02/12/2020
“immediate moves” to lift trade war tariffs
18/02/2021 US Treasury Secretary Janet Yellen says that tariffs on China will be “kept in place”
Chinese Vice-Premier Liu He and US Trade Representative Katherine Tai speak in
27/05/2021
the first trade talks since August 2020
Chinese Vice-Premier Liu He holds a “candid” exchange on issues of concern with
02/06/2021
US Treasury Secretary Janet Yellen
Chinese Commerce Minister Wang Wentao speaks with his American counterpart
10/06/2021
Gina Raimondo
15/07/2021 US says it has no intention to resume highest-level bilateral forum
19/07/2021 Trade deal didn’t address "fundamental problems", Yellen says
USTR says that the Biden administration will "keep open the potential for additional
04/10/2021 exclusion processes, as some tariffs are causing significant commercial harm to US
interests"
Chinese Vice-Premier Liu He and US Trade Representative Katherine Tai speak by
08/10/2021
telephone
US Treasury Secretary Janet Yellen says the United States expects China to meet its
01/11/2021
commitments under the phase-one trade deal
 28
Date
Event
(DD/MM/YYYY)
Sinopec, China’s state-owned oil giant, signs a contract with the US Venture Global
04/11/2021
LNG to buy 4 million tons of LNG annually for 20 years
US extends ban that prohibits American investments in Chinese companies that have
09/11/2021
alleged ties with the Chinese military
16/11/2021 President’s Xi Jinping and Joe Biden hold their first video call
US President Joe Biden says he won’t lift tariffs on Chinese imports since Beijing has
19/01/2022
not abided by the phase-one trade deal
WTO authorizes China to impose US$645 million of compensatory tariffs against the
26/01/2022
US after a decade-long case into alleged subsidies
Report says China bought only 57 per cent of the US exports it committed to purchase
08/02/2022
under the phase-one trade deal
23/03/2022 US reinstates tariff exemptions on more than 350 Chinese imports
US Treasury Secretary Janet Yellen says lifting tariffs on certain Chinese goods could
22/04/2022
help alleviate the high inflation
US begins statutory process that could ultimately end up removing tariffs on Chinese
03/05/2022
goods
Joe Biden says that discussions are ongoing about potentially dropping trade tariffs on
10/05/2022
China that were imposed by his predecessor
Joe Biden said he’ll be talking to Xi Jinping 'soon' and is weighing possible action on
18/06/2022
US tariffs on Chinese goods that were imposed by the Trump administration
21/06/2022 Uygur Forced Labor Prevention Act takes effect
China Vice-Premier Liu He holds a 'pragmatic and frank' exchange on issues of
05/07/2022
concern with US Treasury Secretary Janet Yellen
More than 400 requests to keep tariffs in place on Chinese goods are submitted to the
05/07/2022
US Trade Representative’s office

Appendix 2: Definition of components in BOP

Account Definition

Current Account The current balance includes all transactions between residents and non-residents in
(CA) products, services, labor income, investment income, and current transfers.
 29
Account Definition

Capital and Financial balance encompass all transactions between residents and non-
Capital Account
residents involving direct investment, indirect investment, other investments including
and Financial
cash and deposits, lending and collection of foreign debts (short and long term),
Account (KA)
commercial credit and advances, and other receivables.

The difference between the current account, capital, and financial balance, and the
Errors and overall payment is defined as errors and omissions:
Omissions • This error occurs often due to the inability to make statistics, to gather all transactions
(E) of a country in a period, data sources to many sources, some transactions cannot
determine the correct transaction value, tax evasion, and commercial fraud

The Overall Payment is determined as the change in Official Reserve Account (ORA)
Overall Payment
generated in transactions during the reporting period.

Official Reserve Balance is determined as the change in reserve assets, credit, and debit
from IMF, and special funding.
Official Foreign
• This balance reflects changes in official reserve assets caused by intervention
Reserve (FR)
transactions by a country's government agency to balance the overall balance of private
and government transactions.
 30
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