The New York Times - 30.07.2019

B4 N THE NEW YORK TIMES BUSINESSTUESDAY, JULY 30, 2019

Other Taiwanese and Chinese
partners to Apple have indicated
that they are considering ramping
up operations in Vietnam as well.
Even so, this nation of nearly
100 million people is not about to
replace China as a manufacturing
hub overnight. Land here can be
expensive, and ready-to-use fac-
tories and warehouses are in
short supply. Recruiting enough
trained workers and managers is
another potential challenge.
“It’s definitely stretching Viet-
nam’s capabilities,” said Frederick
R. Burke, a managing director in
Ho Chi Minh City for the law firm
Baker McKenzie. Even though the
country’s labor force is expanding
by a million people a year, he add-
ed, “people are talking about labor
shortages already.”
Vietnam also does not have vast

galaxies of companies churning
out specialized components, parts
and materials like those that man-
ufacturers can call upon in China.
Tran Thu Thuy said that “of
course” she would love to work
with Apple someday. Ms. Thuy’s
firm, HTMP, makes metal molds
that factories use to produce plas-
tic and die-cast parts. She ges-
tured toward a nearby MacBook.
One day, she said, HTMP might be
able to make the molds for metal
laptop bodies. But she knows the
company has to improve in many
ways before that day can come.
“There’s a long list,” she said.
Vietnam is already a colossus in
producing shoes, clothes and
other types of labor-intensive
goods, having long ago begun si-
phoning business away from its
giant northern neighbor.
Nike and Adidas now make
close to half of their sneakers in
Vietnam. As factories have
sprung up, the Vietnamese gov-
ernment has pledged to improve
roads, ports and power plants. Ha-
noi has also signed deals with gov-
ernments around the world to re-
duce tariffs, including an agree-
ment reached last month with the
European Union.
The Trump administration has
not failed to notice that its import
levies have been shifting global
commerce in Vietnam’s direction.
The Treasury has put Hanoi on a
watch list for manipulating the
value of the Vietnamese currency,
the dong, to help exporters. Mr.
Trump suggested last month that
Vietnam might be the next target
for punitive tariffs, calling the
country “almost the single worst
abuser of everybody.”
In response, the Vietnamese
government said it wanted mutu-
ally beneficial trade ties with the
United States, and it highlighted
its efforts to punish exporters who
illegally relabeled their goods as
“Made in Vietnam” to dodge
American taxes.
Yet even Mr. Trump’s feuding
seems unlikely to reverse the
broader shifts that are turning
north Vietnam into a major hub
for electronics. Many of the hulk-

ing factory complexes that stretch

across the horizon in long, palm-

fringed rows are in no small part

thanks to one company.

More than a decade ago, Sam-

sung Electronics, the South Kore-

an titan, set up a plant in Bac Ninh

to reduce its dependence on

China. The move was prescient.

Costs in China continued to in-

crease, and Samsung’s sales there

withered after Beijing called for

boycotts on South Korean prod-

ucts over Seoul’s embrace of an

American missile defense system

in 2017.

Samsung has since closed all

but one of its smartphone plants in

China. It now assembles around

half of the handsets it sells world-

wide in Vietnam. Samsung’s sub-

sidiaries in the country, which em-

ploy around 100,000 people, ac-

counted for nearly a third of the

company’s $220 billion in sales

last year.

A Samsung spokeswoman said

about 90 percent of those sales in-

volved goods shipped from Viet-

nam to other countries. That im-

plies Samsung alone accounted

for a quarter of Vietnam’s exports

in 2018, although even that might

not fully capture the company’s ef-

fect on the wider economy. Sam-

sung’s success in Vietnam helped

convince many of its South Kore-

an suppliers that they needed to

be here, too.

“When you are a big company

and you move to a place, every-

thing follows you,” said Filippo

Bortoletti, the deputy manager in

Hanoi at the business advisory

firm Dezan Shira.

Some Vietnamese business

owners say the blessings are

mixed, though. Foreign giants,

they say, come to Vietnam and

work largely with vendors they al-

ready use elsewhere, leaving little

room in their supply chains for lo-

cal upstarts.

Samsung has 35 Vietnamese

suppliers, the spokeswoman said.

Apple declined to comment.

When Samsung first set up in

the country, it bought some of the

metal fixtures used on its assem-

bly lines from a local firm, Viet-

nam Precision Mechanical Serv-

ice & Trading, or VPMS. But then

more of Samsung’s South Korean

partners started coming into the

country, and after a year, Sam-

sung and VPMS stopped working

together, said Nguyen Xuan

Hoang, one of the Vietnamese

company’s founders.

Price and quality were not the

issue, Mr. Hoang said, over the

hissing and clanging of machinery

at his factory near Bac Ninh. The

problem was scale: Samsung

needed many more fixtures than

VPMS could deliver.

Vu Tien Cuong’s company,

Fitek, produces industrial equip-

ment for Samsung, Canon and

other big firms around Bac Ninh.

He acknowledged that most Viet-

namese suppliers had quality and

productivity issues that kept them

from winning business from

multinational companies. But he

thinks that the root problem is in-

experience, not a lack of money or

knowledge.

“Day by day,” Mr. Cuong said,

Vietnam’s supplier base is im-

proving and “growing up.”

Nguyen Thi Hue, 28, knows a

thing or two about growing up on

the job. For a long time after start-

ing her own company in 2015, Ms.

Hue worked 16-hour days juggling

a day job for another firm while

getting her new venture off the

ground.

Her start-up, Anofa, specializes

in surface treatments for metal

parts. It has worked with suppli-

ers for foreign brands like the

South Korean electronics maker

LG and the Italian motorcycle

maker Ducati.

“We really look forward” to Ap-

ple’s expanding its supply chain in

Vietnam, said Nguyen Van Huan,

Ms. Hue’s husband, who is also

her lawyer.

Anofa has invested in new ma-

chines to try to win more business

from foreign clients. “They have

higher standards and require-

ments,” Mr. Huan said.

“We can meet them,” Ms. Hue

said, beaming.

An iPhone From Vietnam? Thank the Trade War

FROM FIRST BUSINESS PAGE

When Samsung first set up in the country, it used Vietnam Precision

Mechanical Service & Trading for some metal fixtures, but after a year,

when its South Korean partners entered the country, it ended the purchases.

Producing aluminum parts at an Anofa factory, left, near Hanoi.

PHOTOGRAPHS BY LINH PHAM FOR THE NEW YORK TIMES

Chau Doan contributed reporting.

Seeking new

low-wage places to

make or finish

products.

TRADE

tariffs.”
Mr. Trump’s advisers have ech-
oed his stance. Larry Kudlow, the
director of the White House Na-
tional Economic Council, tried to
lower expectations that any big
announcements would come out
of the talks in Shanghai this week
between Robert Lighthizer, the
United States trade representa-
tive, and Steven Mnuchin, the
Treasury secretary, and their Chi-
nese counterparts.
“I wouldn’t expect any grand
deal,” Mr. Kudlow said on CNBC
on Friday. “I think, talking to our
negotiators, they are going to kind
of reset the stage and, hopefully,
go back to where the talks left off
last May.”
Negotiators appeared to be on
the cusp of making a deal earlier
this year. But talks faltered sud-
denly in May, as Beijing made sig-

nificant changes to a draft outlin-

ing the potential terms of an

agreement, and the Americans ac-

cused China of reneging on com-

mitments.

Since then, the path toward

reaching a trade agreement has

been unclear. Talks are highly se-

cretive, but there still appear to be

significant differences over how

China would enshrine new protec-

tions for American intellectual

property, how many American

products China would agree to

buy and how many of Mr. Trump’s

tariffs on $250 billion in Chinese

goods would remain in place.

The two sides also appear to dif-

fer over how explicit the agree-

ment should be. Chinese negotia-

tors previously objected to de-

mands that certain provisions be

enshrined in Chinese law, and

have pushed for a more vaguely

worded text.

Michael Pillsbury, a China ex-

pert at the Hudson Institute, said

that leaving more uncertainty in

the agreement could foster more

trade fights between the world’s

two largest economies, particu-

larly given a complex enforce-

ment mechanism the two sides

previously agreed to establish to

ensure both countries lived up the

agreement.

“If there are loopholes and gray

areas subject to interpretation,

then the extensive appeal process

the Trump administration has de-

signed will be a recipe for a decade

of acrimony,” he said.

Negotiators for the United

States insist that China must wind

the clock back to where it was be-

fore the talks stalled in order for

things to progress. Yet the objec-

tions to the agreement appear to

have come directly from China’s

president, Xi Jinping.

“The real question in the next

week is, ‘Will they go back to

where we were before they

changed their mind?’ ” Wilbur

Ross, the commerce secretary,

said in an interview on Fox Busi-

ness Network on Friday. “That’s

what’s the important thing, be-

cause we were very close to a

transaction before.”

In June, Mr. Trump and Mr. Xi

agreed on the sidelines of the

Group of 20 gathering in Osaka,

Japan, to try to get negotiations

back on track. Mr. Trump

emerged from the meeting saying

that China had agreed to buy

some American farm goods. In re-

turn, he said, the United States

would hold off on imposing addi-

tional tariffs and approve the sale

of some nonsensitive goods to

Huawei, the Chinese telecom-

munications giant that the United

States government has blocked

from buying American technol-

ogy over national security con-

cerns.

Even that truce has not un-

folded as Mr. Trump planned.

China has been preparing to make

agricultural purchases, and on

Sunday the state-run Xinhua

News Agency reported that mil-

lions of tons of American soy-

beans had been shipped to China.

But elsewhere, Chinese officials

have continued to insist that they

are not making purchases as a

condition of the talks.

“In order to better meet the

needs of the domestic market,

some Chinese enterprises are

willing to purchase some agricul-

tural produce from the United

States,” a spokesman from the

Chinese Commerce Ministry said

in a briefing on Thursday. He add-

ed that there was “no direct rela-

tionship” between the resumption

of trade talks and the purchases.

The Trump administration has

continued to follow through on the

agreements the president made in

Osaka. Mr. Trump has temporar-

ily backed off his threat to impose

tariffs on an additional $300 bil-

lion of Chinese imports. And his

administration is considering

granting waivers that would allow

American companies like Google

and Micron Technology to sell

Huawei nonsensitive goods like

handset components that are

widely available on the interna-

tional market.

But it remains unclear exactly

what type of American products

Huawei would be allowed to buy,

and if the limitations would crip-

ple its business.

“China is looking to go back to

the status quo before the trade

war started, and to rewind the

clock” to before Huawei was

blacklisted from purchasing

American goods, said Andy Mok,

a trade specialist at the Center for

China and Globalization in Bei-

jing. “The biggest threat right

now is what happens on Huawei.”

Some Trump administration of-

ficials believe the president would

benefit politically by holding out

for a tougher deal. Democrats

would be quick to criticize any

agreement with China, and poli-

ticians of both parties have

warned about the national securi-

ty threat of permitting further

sales to Huawei.

But while Mr. Trump insists

that the American economy is still

insulated from the trade war, eco-

nomic data suggests that the ten-

sions with China, America’s larg-

est trading partner, are taking a

toll.

Data released on Friday

showed that the American econ-

omy slowed in the second quarter

of the year, with gross domestic

product expanding at an annual

rate of just 2.1 percent as net ex-

ports and business investment

slumped. The Federal Reserve

has frequently cited the trade war

as a problem for the economy, and

it is expected to cut interest rates

on Wednesday to help keep the

economic expansion going.

Big American companies

whose performance has faltered

are also citing tariffs and trade

tensions on both sides of the Pa-

cific as a reason. Caterpillar cited

cooling activity in China, a major

market, when it reported falling

sales growth for the second quar-

ter, while Hasbro, Nintendo and

other companies have discussed

plans to move part of their supply

chains out of China to countries

like Vietnam.

The trade war is also dragging

on the Chinese economy. The shift

of multinational companies out of

China, a trend that was already

underway as a result of rising Chi-

nese wages, could have a corro-

sive effect on growth.

But a sense has emerged in

China that the country can afford

to wait for a better trade deal from

the Trump administration, or from

another president. The Chinese

economy is decelerating, but the

process has been gradual. Further

increases in the country’s already

huge amount of infrastructure

spending have cushioned the

shock.

China’s exports to the United

States have dipped, but they have

not plunged during the trade war,

falling 8.5 percent in the first half

of this year compared with the

same period last year. But exports

to the rest of the world have been

up slightly.

“At this point, I don’t think peo-

ple worry so much about the trade

war anymore,” said Weijian Shan,

a prominent Chinese economist

and financier in Hong Kong.

“Most of them don’t see a real neg-

ative effect on their businesses.

The panic has subsided.”

Talks Resume as Prospects Dim for Transformative Deal Between U.S. and China

FROM FIRST BUSINESS PAGE

‘I think that China will

probably say: “Let’s

wait. It’s 14, 15 months

till the election.”’

President Trump, on the prospects

for reaching a trade deal.

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