Following up on an earlier report in February on Chinese furniture manufacturers aggressively setting up production in Mexico, we turn our attention to Vietnam.
Manufacturers there have had a hard time recovering from the pandemic and post-pandemic slowdown in global trade, evidenced by a sharp downturn in exports to the United States during this year’s first two months, according to trade data.
Wood furniture is among the categories hard hit, with exports during this period down 20% compared to a year ago, according to the “Vietnamese Investment Review.”
Like Chinese producers, Vietnam’s exporters have noted the trend in the U.S. toward nearshoring and are likewise moving to establish a presence here. Delegations of Vietnamese factory executives are increasingly present in Mexico, particularly in the state of Jalisco.
“These visits are no longer exploratory,” the president of the Mexican Foreign Trade Council (Comce) of the West, Miguel Ángel Landeros, told “El Economista,” describing visits by multiple sectors, not merely furniture. “They are more to see where they will be participating.”
Mexican news outlet “CE Noticias Financieras” reported on the visit of 17 executives and officials from Vietnam to Jalisco in February “in search of investment and commercial exchange options.”
“All the development that has been taking place between Mexico, the United States and Canada continues to open doors with other Asian countries,” Ángel Landeros said. “There are companies coming from China, now from Vietnam and other Asian countries.”
Liberalizing of global trade
Nguyen Ho Hai, deputy secretary of the Ho Chi Minh City Party Committee, who participated in the delegation, characterized Vietnam’s trade in and with Mexico as “small,” at least so far. But, he also described the move into the area as a joint project of private companies and the Vietnamese government. Like many governments in Asia, Vietnam’s has been aggressive in liberalizing trade rules, tariff regimes and policies.
In addition, Vietnamese producers are supported by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that lowered tariffs and trade barriers. The agreement, established in 2018, continues to gain signatory nations, including most recently Australia.
As a transpacific agreement, the CPATPP favors Asian manufacturers, not only or even especially Vietnamese sources. The competition, therefore, remains intense, and the furniture sector in Vietnam has lagged in taking advantage, according to Ho Hai.
“There are areas in which we are not competitive,” he told “CE Noticias Financieras.”
The February visit followed a trip to Ho Chi Minh City by Mexican business leaders and officials in November. Mexico is a signatory to CPATTP, as well.
In a separate report, a Vietnamese trade official acknowledged what he called “de-globalization,” or trend lines that reflect U.S. importers and retailers seeking to hedge against future disruptions in supply chains. These concerns include “ever-burgeoning safeguard measures” and new rules covering everything from sustainability, product safety and hiring and retention practices, according to Tran Thanh Hai, deputy general director of the Agency of Foreign Trade under the Ministry of Industry and Trade.
You might recall that the CPTPP followed a failed effort to get the United States and Canada to participate in what was called the Trans-Pacific Partnership in 2016, or just as Trump assumed office. Afterward, the 11 remaining signatories pushed forward with the CPTPP, which allies 13.4% of the world’s gross domestic product, or economies worth at the time of the signing in January 2018 a collective $13.5 trillion.
Thus, while North America is narrowing its scope in terms of global trade, Vietnam and most of the rest of Asia is widening theirs.
According to research firm Fitch Solutions, Vietnam’s GDP growth has slowed sharply, going from nearly 14% in the third quarter last year to less than 6% in the fourth quarter, compared to the same periods a year prior. The first two months of this year follow this trend line, with Vietnam’s wood product and wood exports plunging 35% to $1.6 trillion, according to Vietnam’s official trade data.
“While the economy will receive support from a likely rebound in demand from mainland China, it will not be enough to offset the impact of a further weakening in global demand,” according to the newly released report, which puts Vietnam’s GDP growth this year at below the pre-Covid pandemic average of 7%.
Despite the global trade headwinds, Vietnam remains one of the fastest-growing markets in Asia because of its relatively large population and strong labor force. In addition, wages, including those in the furniture sector, are competitive when compared to, for example, China, Malaysia and Thailand, according to the Fitch Solutions study.
It is easy to forget how far Vietnam has come in such a short period. From an overall negative trade balance as recently as 2012, Vietnam has enjoyed export surpluses every year since. That string is not likely to be broken this year, especially with the Chinese market also re-opening. But, political instability and the powder keg that is China vis-à-vis its Asian neighbors are reasons for pause.
Also of concern to Vietnam watchers are the high content of its exports represented by imported raw materials and parts, as well the extent to which foreign concerns dominate Vietnamese exports. Approximately 70% of Vietnam’s trade is represented by foreign firms, including, in the furniture sector, mainland Chinese and Taiwanese concerns.
Furniture represents just 4% of Vietnamese exports, according to Fitch Solutions, relying on government trade data, making it the fifth largest product sector. Electronics, including mobile phones and computers, is the largest at 39%, according to data for 2021.
For all exports, the U.S. is by far the largest market, representing 29% of exports in 2021. China is second at 17%. However, China is the largest source country for imports, representing 33% compared to just 5% for the United States.