Vietnam wins and loses some in the trade war, but mostly wins

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Just wanted to put a few pieces together about the US-China trade war and US tariffs. On the positive side for Vietnam:

  • Apple is going to trial AirPod production in Vietnam, according to this story.

  • More mattresses in the US are coming from Vietnam. “Vietnam’s mattress imports are running at a current annualized rate of 1.3 million units, a level far below the 6.2 million unit rate peak achieved by China earlier this year, Raymond James noted.” Still, that seems pretty good to me.

  • Hasbro (a company I covered a really long time ago and the second largest toy company in the US/world) is moving manufacturing away from China to Vietnam and India. Still, there’s this: “Hasbro hopes to have only 50% of its products coming from China by the end of 2020.” So China is doing pretty well.

Here is an article that summarized the trends pretty well.

But some companies in Korea were too cute and tried to evade the trade war by sending production through Vietnam.

  • Turns out, the US Commerce department doesn’t buy that the steel is actually being manufactured in Vietnam, so it is slapping enormous tariffs on it. “The Commerce Department responded by slapping tariffs as high as 456.23 percent on those imports.”

Just a point here. So many companies have said that it would be impossible to shift supply chains or that it would take a long time. Remember when everyone said that Apple couldn’t move out of China. Well, it turns out that, sure, it can be hard to move production, but give it time, and things can be moved. It’s like the difference between fixed and variable costs. Over a certain time period, everything is variable! Over time, everything can be moved.

Also, some of this shifting supply chain is “a long time coming.” That’s because labor costs are rising in China, as are regulatory requirements around environmental issues. That’s on top of the uncertainty around trade.

The IMF just lowered world economic growth to 3.2% (from 3.3%), including China (-0.1pp) and ASEAN (-0.1pp), mostly because of weaker Chinese growth. It kept its forecast for real GDP growth at 6.5% for the next few years, but I wonder if China really starts to slow what that will mean for Vietnam. Right now the shifting trade looks good for Vietnam, but if China ever went through a recession, then Vietnam is going to do the same. As the cliche does not go, when China catches a cold, Vietnam sneezes.