Vietnam, President Trump and the TPP

President Donald Trump’s withdrawal of the U.S. from the TPP sparked an active debate in Vietnam among mid-ranking officials and scholars about Vietnam’s trade policy in general and suitable responses to the U.S. withdrawal. This ongoing discussion identifies two major problems and three responses for Vietnam, the TPP’s least developed member.

Problems

• The failure of TPP would mean a huge loss for Vietnam, especially in relation to reducing the country’s trade dependence on China. Vietnam’s trade deficit with China is an important reason why the TPP is significant in Vietnamese eyes. In 2014, Vietnam had a total trade surplus of $2.4 billion, but a yawning trade deficit of $28.7 billion with its largest neighbour. That year the U.S. was Vietnam’s largest export market accounting for about one-fifth of total exports, while China was the largest source of imports accounting for roughly 30% of total imports to Vietnam.

• For Vietnam, joining TPP was a major means to achieve the second stage of “Đổi Mới” (renovation, Doi Moi was first launched in 1986) reforms by opening the door to more competent, transparent governance and by increasing external pressure to overhaul domestic corporations to be more competitive. As this outside pressure from the TPP has been reduced, important second-stage domestic reforms will be delayed. For instance, the new labour law has been delayed by at least nine months.

Responses

• With President Trump’s termination of TPP, what is next for Vietnam’s trade agenda? A bilateral agreement between the United States and Vietnam is being discussed in Vietnam. Some observers argue that a bilateral trade agreement that encapsulates the essence of TPP would transform Vietnamese-US relations in a way that would create significant winners for both sides. However, the possibility of getting such agreement through the current U.S. Congress is unlikely. Given the increasing U.S. protectionism behind the withdrawal, top Vietnamese economic advisors recognize that these political realities weigh against a bilateral deal.

• Showing some foresight, in 2014, when the TPP negotiations process were sluggish with multiple missed deadlines, Hanoi decided to fast-track alternatives, including free trade talks with South Korea (completed in May 2015), the Russia-led Eurasian Customs Union linked to the Eurasian Economic Union (completed in May 2015) and the European Union (completed in August 2015) as promising alternative markets. Among these, the Vietnam-E.U. Free Trade Agreement (EVFTA) will become a priority for the government. Vietnam and the E.U. will push ahead with the review of legal documents and EVFTA should be passed and take effect next year.

• While Vietnam is striving to reduce its dependence on the Chinese economy, the changing global economic landscape currently has put Hanoi’s leaders in a difficult situation again. Standing high on that list of alternatives to the TPP are the Regional Comprehensive Economic Partnership (RCEP) and China’s One Belt One Road infrastructure initiative. Vietnam has little choice but to remain engaged in both despite fears of increased dependence on China.

Vietnam has little choice but to remain engaged in both despite fears of increased dependence on China.

After the TPP’s apparent death at the hands of the Trump administration, Vietnam’s must look elsewhere. Both RCEP and EVFTA partners, including the E.U. countries, India and Japan, are complementary economies to the Vietnamese market. Closer ties with these major economies will be more important now for securing Vietnam’s economic interests vis-à-vis its big neighbour in the north, and for pursuing a successful multi-directional foreign policy in Vietnam’s unpredictable external environment post the inauguration of President Trump.