Big potential for bilateral trade between Việt Nam and the US: experts

On the sidelines of the DPRK-USA Hanoi Summit on Wednesday, three Vietnamese airlines signed deals with US firms worth more than US$21 billion, but will this spell the start of an increase of bilateral agreements between America and Việt Nam? 

Việt Nam News reporters spoke with economic experts and investors about the future of bilateral relations between Việt Nam and the US.

Adam Sitkoff, Managing Director of the American Chamber of Commerce (Amcham) in Hà Nội. — Photo courtesy of Amcham

Adam Sitkoff, Managing Director of the American Chamber of Commerce (AmCham) in Hà Nội.

This year, AmCham celebrates 25 years of working in partnership with our many friends in the Government to help improve business conditions that strengthen the private sector and promote economic and social development here. AmCham members have had a transformative role in the development of Việt Nam. From managerial practices and technologies to service standards and business ethics, the US business community here has affected Việt Nam in many positive ways. Today, the US and Việt Nam are partners – something once thought unimaginable – and American companies and investors are now active in almost every sector of Việt Nam’s economy, helping to integrate the country into the global supply chain, creating quality jobs and making the country more productive, safe and clean.

Earlier this week, President Trump and President Trọng witnessed the signing of commercial agreements worth over US$20 billion, with several of the airlines in Việt Nam agreeing to buy Boeing jets and technology from the US. President Trump praised the Vietnamese for substantially reducing the trade deficit and complimented the country, tweeting: “Việt Nam is thriving like few places on earth.” I believe these business deals reflect the growing economic ties and strengthening partnership between Việt Nam and the US.

Today, I see tremendous opportunities in Việt Nam – for both the domestic and foreign business sectors. Ongoing US-China trade tensions have highlighted the risk of concentrating production bases in a single country and are triggering supply chain re-organisation. Companies are shifting some production out of China and Việt Nam is gaining some of that business. The question is how Việt Nam can fully capitalise on this opportunity in order to continue its rapid upward economic trajectory.

I believe that the business climate can best be helped by actions that increase productivity and reduce the costs and risks of doing business in Việt Nam. Whether looking at financial services, healthcare, consumer goods, hospitality or other industries, it is critical that Việt Nam maintains a conducive environment that allows competition between and among local and foreign players to promote innovation and more cost-effective solutions and products.

AmCham will continue to work on lowering barriers to trade to help the Vietnamese Government make it easier to do business and to create a high-standard, transparent and stable business environment here.

Cấn Văn Lực, Chief Economist of BIDV

Cấn Văn Lực, Chief Economist of Bank for Investment and Development of Vietnam (BIDV)

The trade deals signed on Wednesday are evidence of the economic development potential between the two countries, especially in the context that bilateral trade volume increased 260 times from US$222 million in 1994 [according to the US Department of Commerce] to $60 billion in 2018.

In addition, the US is the biggest export market of Việt Nam, accounting for 20 per cent of Việt Nam’s total exports. The US ranks 11th in FDI provided to Việt Nam with 900 projects worth $9.3 billion. In the field of education co-operation, about 31,000 Vietnamese students have been studying in the US, ranking the fifth worldwide and first in ASEAN.

In short, I can mention four reasons for the trade potential: the economy of both countries is growing positively; the US-China trade war is a chance for Viêt Nam to boost exports to the US as well as for the US to enhance its export and investment in Việt Nam; Việt Nam is preparing to open direct flights to US; and the two sides want more balanced trade.

Even still, the possibility of reducing the trade deficit with Việt Nam cannot be an overnight process due to the structure of the American economy (spending more than saving, leading to the current account deficit, and the demand for imports is always high).

I also want to note that trade deficits in general and a trade deficit from one country in particular are not really bad because the importing country is making use of trade advantages from the other country.

Don Lam, CEO of VinaCapital

Don Lam, CEO of VinaCapital

The deals announced on Wednesday are very positive. Not only do they further strengthen the relationship between Vietnamese and American companies, but they will also help to reduce the trade imbalance between the two countries. These deals send a very strong signal to other US companies that there are significant opportunities to do business in Việt Nam.

The US has been Việt Nam’s largest export market for a few years now, and it is clear to me that the relationship between the two countries will only continue to grow. As Việt Nam’s economy and business community evolve, I believe we will see Vietnamese companies exporting higher-value goods and services to the US and other developed markets.

Additionally, I believe US companies will see enormous opportunities for selling their products and services in Việt Nam. Việt Nam is a rapidly growing country which seeks to have strong bilateral relationships with trading partners around the world.

Trần Toàn Thắng, from MPI

Trần Toàn Thắng, Director of the National Centre for Socio-Economic Information and Forecast’s World Economy Department, Ministry of Planning and Investment

The signing of aeroplane purchase and services deals between Việt Nam and the US on the sideline of the DPRK–USA summit, in my opinion, seeks to narrow the trade deficit the US has with Việt Nam and enhance the capacity of Việt Nam’s aviation industry.

The US has been running significant deficits with Việt Nam, including $34.8 billion last year. In the context that President Donald Trump is trying reducing the trade deficit through tough and immediate measures, Việt Nam is increasing imports from the US, which I think is necessary and appropriate. Việt Nam’s imports from the US increased by 36.4 per cent last year.

The World Bank has forecast Việt Nam to top Southeast Asia in the tourist arrivals growth rate in 2016-21. The country might achieve average growth of 17.1 per cent during the period compared to the regional average of 6.1 per cent.

Thus, expanding the capacity of the aviation industry is necessary.

Trade and investment opportunities between the US and Việt Nam remain excellent thanks to the fact their products are complementary. Especially because of the trade war, Vietnamese products have a great opportunity to tap the market gap in the US created by the US’s tariffs on $250 billion worth of imports from China.

In the short term, it is evident that the US tariffs on Chinese goods will only help the US change the countries which it has a trade deficit with. Reducing the trade deficit itself needs adjustments in production structure and will take time.

US firms will have better opportunities to invest in Việt Nam, given the country’s stable and improved business climate coupled with the trend of shifting investments from China to Việt Nam.

Nguyễn Văn Toàn, Vice Chairman of the Việt Nam Association of Foreign Invested Enterprises

Nguyễn Văn Toàn, Vice Chairman of the Việt Nam Association of Foreign Invested Enterprises (VAFIE)

The DPRK-USA Hanoi Summit is a golden opportunity for Việt Nam to establish closer relations with the US, which helps enhance investment, trade and tourism. It will also enable Việt Nam to build long-term trust among American investors to attract high-quality investment inflows in future.

American investment in Việt Nam does not match the potential. The US invests some US$300 billion in foreign markets every year while the investment in Việt Nam is less than $1 billion.

US President Trump saw the goodwill of the Vietnamese Government and the determination of local businesses, which will be a good foundation for the US as well as its business community to trust Việt Nam. 

Besides the summit, the grant of Category 1 (CAT) by the US Federal Aviation Administration to Việt Nam on February 15 also showed the America’s increasing trust in Việt Nam. The long-awaited decision will also contribute to increasing investment by American investors in Việt Nam.

I believe investment by the US in Việt Nam will see a breakthrough after the summit, taking the US higher up the list from its current position of 10th largest investor in Việt Nam.

Investment flows from the US to Việt Nam in future are expected to focus on manufacturing, services and high-tech agriculture. Việt Nam has succeeded in exporting some farm produce to the US, and so American investors will see Việt Nam as a good destination for their investment, enabling them to take part in farming and processing to export their products to the US and other markets that Việt Nam has free trade agreements with.

Besides foreign direct investment, American investors might increase merger and acquisition (M&A) deals with Vietnamese counterparts since it is the fastest way to help them capitalise on the promising Vietnamese market.

However, to capitalise on the event and attract more American investors, especially leading multinationals, the Vietnamese Government should continue to improve business and investment transparency and safeguard intellectual property rights because American multinationals often demand a transparent and consistent investment and legal environment.

The Government should put investment protection regulations in the laws since investors from developed countries, including the US, are very interested in this. They must be assured that their legitimate rights will be protected. — VNS