Bloomberg Businessweek USA - 12.08.2019

◼ ECONOMICS Bloomberg Businessweek August 12, 2019

Vietnam Has ItGood—MaybeToo Good

30

U.S. President Donald Trump’s trade war has Peter

Chang scrambling. Sixty components makers that

supply Foxconn Technology Group and Samsung

Electronics Co. have come knocking at his indus-

trial park northeast of Hanoi in the past three

months. They’re looking to skirt U.S. tariffs on

Chinese products. “They need to get into Vietnam

now—immediately,” says Chang, deputy general

director of Shun Far Land Development Co., which

operates the Thuan Thanh II Industrial Park. “We

have our building team waiting.”

Chang is negotiating with neighboring

landowners to convert rice fields into assembly lines

to take advantage of the sudden boom in business.

He realizes, though, that it may not last. Even as for-

eign companies are lining up at Vietnam’s industrial

parks, the Trump administration is increasing pres-

sure on the country’s communist leaders to curb its

growing trade surplus with the U.S.

Vietnam is caught between contradictory forces

unleashed by the U.S.-China trade war: The country

of 96 million people is benefiting so much from the

impasse that it, too, is at risk of being hit with puni-

tive American duties. Its leaders are trying to con-

vince the Trump administration that they’re fair

traders as they seek to protect exports to the U.S.,

which in the first half of 2019 equaled almost 26%

of gross domestic product. “The United States has

been clear with Vietnam that it has to take action

to reduce the unsustainable trade deficit,” said

U.S. Trade Representative Robert Lighthizer in a

written communication with the Senate Finance

Committee released on July 29.

The combination of a young and compara-

tively cheap labor force, stable government, and

business-friendly environment has turned the

Southeast Asian nation into an appealing alterna-

tive to China. Intel Corp. and Samsung were early

to spot its promise: Today they employ more than

182,000 workers combined at factories that assem-

ble chipsets and smartphones.

Now makers of sneakers and video game con-

soles, among others, are looking to shift pro-

duction to Vietnam to evade American tariffs on

Chinese goods. The government granted invest-

ment licenses to more than 1,720 projects in the

first six months of the year, up 26% from the same

period last year.

Vietnam’s dependence on exports makes it par-

ticularly vulnerable to the surge in protectionism.

Its trade surplus with the U.S. totaled $25.3 billion

in the first six months of 2019, 39% higher than the

same period last year, according to U.S. Census

Bureau data. The Trump administration has seized

on the worsening imbalance as evidence that some

companies are funneling made-in-China products

through Vietnam to avoid tariffs, a practice known

as transshipment. In July the U.S. slapped duties

of more than 400% on steel imports from Vietnam

that it says originated in South Korea and Taiwan.

Washington is dialing up the pressure on

Hanoi in other ways. In May, Vietnam was added

to the U.S. Treasury Department’s list of possi-

ble currency manipulators, a designation that

could result in punitive measures. A month later,

Trump, in an interview on Fox Business Network,

● The country has benefited so much from the U.S.-China impasse that it risks getting dragged into the trade war

by Sanders. Rubio cited his work this year in a

report on America’s failure to invest.

Lazonick says buybacks are a driver of high

inequality and low investment. They’re also a

reason U.S. companies have fallen behind their

Chinese competitors in the race to dominate 5G

telecommunications. (He’s working on a paper

comparing Huawei Technologies Co. with Cisco

Systems Inc., which has spent more than $100 bil-

lion this century buying its own stock.)

Most economists, blinded by faith in finan-

cial markets as the most efficient allocators of

resources, have missed the whole problem, accord-

ing to Lazonick. “They just say, ‘Oh, the investment

ends up somewhere,’ ” he says. “That’s an argument

with no evidence.” Lazonick says the label favored

by corporate bosses to describe their buybacks—

“capital return program”—is misleading. “Capital is

something that gets invested,” he says. “It’s not cap-

ital. It’s just money.” �Ben Holland and Liz Capo

McCormick, with Alex Tanzi

THE BOTTOM LINE U.S. corporate borrowing is on track to

exceed last year’s record. But the debt binge is financing stock

buybacks instead of productive investment.

● Value of U.S. imports

of goods

1H ’18 1H ’19

$250b

0

30

China

1H ’18 1H ’19

$30b

0

Vietnam