BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS THE TREND OF TRADE PROTECTIONISM IN THE WORLD AND ITS EFFECT ON VIETNAMESE ECONOMY May 2018... DECLARATION I declare that th
INTRODUCTION
Research background
Support for trade protectionism often resurfaces during times of slow economic growth and rising income inequality Recent indicators suggest a resurgence of trade protectionist policies, particularly among G20 nations, which have increasingly adopted tariffs and other protective measures since the Global Financial Crisis This trend raises concerns that protectionism may continue to gain momentum in the near future.
Since President Donald Trump's election in 2016, trade protectionism has gained significant traction in the US, with similar movements emerging in parts of Europe The future of trade policies across various countries remains uncertain, as opinions diverge; some anticipate only minor adjustments, while others express concern over a potential regression in protectionist measures and a rejection of the global trading system.
Trade protection policies play a crucial role in the economic development of nations, regardless of their status as developed or developing These policies aim to foster the growth of domestic industries, ensuring they are competitive, equitable, and sustainable.
In the 21st century, globalization and regionalization have advanced significantly through economic organizations like the WTO, EU, AFTA, and NAFTA, yet trade protectionism has become increasingly prominent Following the global financial crisis, nations worldwide are imposing trade restrictions to safeguard domestic products, leading to a rise in protectionist measures This shift threatens the principles of economic globalization, as countries, both developed and developing, including Vietnam, face the repercussions of this growing trend The impact of trade protectionism on the global economy is substantial and cannot be overlooked.
As a result, the topic “The trend of trade protectionism in the world and its effect on
Vietnamese economy‖ is chosen for this graduation thesis.
Research objectives
This research examines the overall trend of trade protectionism, with a specific focus on Vietnam's trade protection policies and their effects on the nation's economy It aims to provide recommendations for addressing the increasing trend of trade protectionism.
Scope and subject of the study
Subject: The subject of the research focuses on the trend of trade protectionism in the world and its effect on Vietnamese economy
Scope: The research concentrates on studying the trade protectionism trend in the world since the global crisis in 2008 till now.
Research questions
This research focuses on three main questions:
How is trade protection policy implemented in different countries?
What are the impacts of trade protectionism on Vietnamese economy?
Research methodology
The thesis employs both quantitative and qualitative methods to gather comprehensive data The quantitative approach involves collecting numerical data and statistics to effectively support the thesis, while the qualitative method focuses on insights obtained from diverse research perspectives This dual methodology enables the author to reach well-founded conclusions and offer appropriate recommendations.
Research/ Thesis structure
The thesis consists of 5 main chapters:
Chapter 2: Overview of trade protectionism
Chapter 3: The trend of trade protectionism trend and its effect on Vietnamese economy
In recent years, there has been a significant increase in literature focused on trade protectionism, with many researchers analyzing the global trend of rising trade protection measures.
In their 2010 study, Fredrik Erixon and Razeen Sally examined the impact of the global crisis on international trade and highlighted the rise of "creeping protectionism," emphasizing the intricate relationship between trade, globalization, and emerging protectionist measures.
In "Protectionism in the 21st Century," the National Board of Trade, as noted by Altenberg (2016), provides a comprehensive analysis of the nature and impact of contemporary trade protectionism.
On the other hand, Luca Ferrini (2012) with the paper ―What are the Main Causes and
Economic protectionism has been extensively analyzed, notably in Lawrence Low's 2009 article "Nine Reasons For Protectionism," which outlines the primary causes behind trade protectionist measures Additionally, the Food and Agriculture Organization's resource manual by José María Caballero, Geraldo Calegar, and Carlo Cappi (2000), titled "Multilateral Trade Negotiations On Agriculture," explores the instruments of protection and their economic implications Together, these works provide valuable insights into the motivations and consequences of trade protectionism in the agricultural sector.
On the matter of advantages and disadvantages of trade protectionism, there is Paul Goodman (2018) with the article ―The Pros and Cons of Import Tariffs and Trade
In his 2018 article, "The Economic Effects of Trade Protectionism," Professor Arthur S Guarino explores the motivations behind trade protectionism and its theoretical impacts on the economy.
In recent years, several articles have highlighted the ongoing trend of trade protectionism, with Preety Bhogal (2017) asserting that China's protectionist tendencies will persist, while Ana Swanson (2018) questions whether 2018 will mark a significant rise in protectionism, emphasizing that the decision rests with Trump Specific market sectors have also been scrutinized, as Justin Jacobs (2018) addresses the escalating China-US trade war's impact on the energy sector, Steve Garnsey (2017) warns of a new wave of protectionism threatening the automotive industry, and Ankit Bhatia (2017) examines how protectionist measures are influencing the global steel trade.
Geoeconomic Studies (2017) with ―The Rise of Digital Protectionism‖
The authors acknowledged the increasing trend of global trade protectionism in their research; however, they failed to offer solutions for nations grappling with trade barriers and did not delve into the analysis of any specific country or group of countries.
In Vietnam, several articles highlight the impact of trade protectionism on the local market, including "Vietnam’s exports still going strong despite US protectionism" by Nhan Dan news (2017), "Vietnam steelmakers urge protection of exporters" from The Saigon Times Daily (2018), "Impact of U.S Steel Tariffs on Vietnam" by Vietnam Briefing (2018), and "VN exporters fear protectionist Trump policy" published by Vietnamnews (2016) These sources collectively illustrate the resilience of Vietnamese exports amidst rising protectionist measures from the U.S and the concerns of local exporters facing potential challenges.
In the 2014 study titled "Exploring Trade Barriers and Their Practical Implications in Vietnam," researcher Doan Thien Thu examined the protection policies implemented in Vietnam and their impact on specific market sectors However, the focus was primarily on domestic trade protection policies, overlooking the global trend of rising trade protectionism and its implications for the Vietnamese economy.
Building on the limitations of previous research, this thesis aims to explore the overlooked aspects of rising global trade protectionism from 2008 to the present, specifically its impact on the Vietnamese economy By assessing the current situation, the study will propose effective solutions for Vietnam to address the challenges posed by increasing trade protectionism.
OVERVIEW OF TRADE PROTECTIONISM
Definition of trade and trade protectionism
Trade primarily refers to cross-border transactions involving the purchase and sale of goods As defined by Investopedia, it encompasses the buying and selling of goods and services, where buyers compensate sellers or parties exchange goods or services Essential for fulfilling human wants, trade is not solely profit-driven; it also aims to serve consumers This vital social activity ensures a continuous supply of goods to meet the ever-evolving and limitless demands of society.
Trade can be divided into following two types: domestic trade and international trade Domestic trade or home trade, as explained by Gaurav Akrani (2011) in ―What is
Trade encompasses the exchange of goods and services within a country's political and geographical boundaries, occurring at local, regional, or national levels In contrast, international trade involves transactions across national borders and plays a crucial role in the economy, often contributing significantly to a country's gross domestic product (GDP).
There are two opposing perspectives on trade control: free trade and trade protectionism Free trade advocates for an unrestricted trading environment, relying on global supply and demand to drive efficient production without the need for intervention Conversely, trade protectionism emphasizes the necessity of regulating international trade to maintain market functionality Proponents of this approach argue that market inefficiencies can undermine the advantages of international trade, and they seek to address these inefficiencies to enhance market performance.
Trade protectionism refers to government actions and policies designed to limit international trade, primarily to safeguard local businesses and jobs from foreign competition This approach encompasses various barriers, including tariffs, subsidies, and quotas, aimed at altering trade dynamics In some cases, more severe measures like import bans and sanctions are implemented for economic or political motives.
Reasons behind trade protectionism
There are several reasons for the support of trade protectionism The first argument in favor of trade protectionism is to protect the infant industry According to Luca Ferrini
An infant industry, defined as a newly established sector within a country, often struggles to compete against established foreign competitors in an open trade system These seasoned rivals benefit from advanced technology and lower production costs, putting the nascent industry at a disadvantage and leading to potential financial losses To ensure its survival and eventual competitiveness, it is essential to protect the infant industry during its critical early development stages.
Trade protectionism is often justified as a means to protect jobs, especially in developed countries where labor laws and unions safeguard workers' rights In contrast, many industries in developing nations thrive due to low wages and weaker legal protections, creating an "uneven playing field" in global competition This disparity raises concerns about social conditions and human rights for workers abroad By implementing trade protectionist measures, developed countries aim to restrict the import of goods that fail to meet essential standards for human rights and working conditions, thereby ensuring fair competition and job security for their workforce.
Lawrence Low (2009) argues in "Nine Reasons For Protectionism" that trade protectionism serves as a significant source of government revenue, particularly in developing countries where high unemployment and a lack of large firms hinder income and corporation tax collection To generate necessary revenue, governments often impose tariffs on foreign goods While this perspective contrasts with the liberal view that advocates for a minimalist state role in the economy focused solely on wealth maximization, it highlights the diverse interests of states that may lead to trade-offs with income maximization objectives.
National security is a key reason for trade protectionism, as highlighted by Lawrence in his article Governments often maintain protection measures to ensure survival, even if they lack a comparative advantage in certain goods Industries like agriculture and steel become strategically crucial during crises or wars, as they can be easily disrupted For instance, Japan imposes high quotas and tariffs on rice to protect its farmers and ensure food security during emergencies Similarly, the U.S seeks to protect its steel industry to guarantee sufficient production of tanks and munitions in times of conflict However, this rationale is frequently exaggerated, as countries in crisis are rarely completely cut off from supplies, suggesting that national security concerns may serve as a pretext for implementing protectionist policies.
Trade protectionism can be driven by the desire to discourage unethical practices in other countries For instance, imposing tariffs on shoes and textiles from East Asia serves as a form of protest against poor working conditions, such as long hours and low wages faced by Chinese workers, as well as non-compliance with health and safety regulations, which gives these employers an unfair competitive advantage Additionally, trade restrictions can express discontent with nations in Africa, where funds are often diverted to support civil wars and terrorism.
Trade protectionism is strongly supported by the need to guard against dumping, which the World Trade Organization defines as state intervention that leads to subsidized exports priced below actual market costs For instance, the EU, facing significant surpluses of butter and milk, may sell these products at drastically reduced prices in developing economies Without protective measures for local dairy industries, this could result in the displacement of local farmers However, distinguishing between intentional dumping aimed at undermining local industries and genuine market advantages for exporting countries remains a complex challenge.
Cultural preservation serves as a significant non-economic rationale for trade protectionism, as many countries impose restrictions on imports to safeguard their cultural identity and national traditions The interplay between culture and trade liberalization highlights the potential impact of foreign goods and services on a nation's cultural landscape Consequently, governments may seek to limit the importation of products considered detrimental to their cultural heritage.
Trade protection instruments
Protection instruments can be divided into two main groups: direct and indirect instruments
Table 1: Main instruments of protection
Import and export quotas Commodity programs
Export subsidies Input subsidies and tax exemptions
(Source: http://www.fao.org)
According to the FAO, direct protection instruments impact commodities during their entry into international trade, whether as imports or exports The primary instruments include tariffs, export taxes, export subsidies, and quotas.
Tariffs are a fundamental trade policy tool that elevate import prices for domestic consumers, boost government revenue, and incentivize local producers to enhance production of competing goods By doing so, tariffs increase the income of both producers and the government while negatively impacting consumers, ultimately leading to higher domestic production levels than would occur without such protective measures.
Export taxes are imposed by governments to generate revenue from the export of commodities, but they can negatively impact producers by lowering the prices they receive This reduction in price also affects domestic markets, leading to decreased domestic production and increased consumption of the exported goods, ultimately resulting in a decline in export volumes While export taxes support domestic consumers and bolster government budgets, they do so at the expense of export producers Although their prevalence has diminished in recent years, export taxes were widely utilized in the past, particularly in countries where primary commodity exports provided a reliable source of fiscal income.
Export subsidies are financial incentives provided to firms or individuals for exporting goods, functioning similarly to tariffs or export taxes, and can be classified as either specific or ad valorem These subsidies encourage producers and traders to export by increasing profitability, which in turn raises the domestic price of the goods When the government supports the export of a commodity, traders will continue exporting until the domestic price surpasses the foreign price by the subsidy amount While export subsidies advantage producers and traders, they ultimately disadvantage domestic consumers and taxpayers.
Import quotas are government-imposed limits on the quantity of goods that can be imported or exported within a specified timeframe These quotas can be established unilaterally or negotiated with other countries that agree to restrict their trade "voluntarily." Similar to tariffs, import quotas increase domestic prices and benefit local producers at the expense of consumers However, unlike tariffs, where the government collects revenue from the price difference, the revenue from quotas may go to license holders who are permitted to import goods and resell them at higher prices in the domestic market.
Indirect protection instruments encompass various strategies such as exchange rate management and targeted support for specific producers, particularly in agriculture Key measures include exchange rate controls, commodity programs, input subsidies, tax exemptions, and anti-dumping legislation, all aimed at stabilizing the market and supporting local industries.
Raising the exchange rate leads to currency devaluation, which boosts the domestic currency value received by exporters and increases costs for importers, thereby promoting exports while discouraging imports This strategy offers broad protection to domestic exporters and competitors against imports Conversely, an overvalued exchange rate has the opposite effect, as it hampers exports and incentivizes imports, functioning as a subsidy for imports while imposing a tax on exports.
Commodity programs are essential agricultural protection tools utilized by the United States, the EU, Japan, and other nations to support local farmers These initiatives aim to bolster farm incomes, frequently leading to import restrictions or export subsidies Key components of commodity programs include direct payments to farmers through crop price subsidies and supply control measures that seek to decrease the harvested area.
Input subsidies and tax exemptions are designed to lower production costs by reducing the price of essential inputs These subsidies often manifest as direct financial assistance for inputs, exemptions from indirect taxes, favorable domestic credit terms for production loans, specialized government insurance programs for farmers, and free or subsidized extension services Additionally, they may include reduced or waived costs for irrigation water, among other forms of support.
Anti-dumping legislation plays a crucial role in international trade by addressing the practice of dumping, which involves selling goods in foreign markets at prices lower than their production costs or below their fair market value Fair market value is typically considered to exceed production costs Proponents of anti-dumping laws argue that these regulations protect local businesses from the adverse effects of cheaper foreign imports that could lead to closures However, in reality, such laws are often utilized to impose trade tariffs on foreign exporters, impacting the dynamics of global trade.
Advantages and disadvantages of trade protectionism
Trade protectionism offers significant benefits by allowing emerging businesses to develop at a manageable pace, free from the intense competition posed by more established foreign firms This nurturing environment enables new companies to gain experience and strengthen their capabilities, ultimately preparing them to compete effectively in the international market As these businesses grow, they contribute positively to the domestic economy, fostering long-term economic stability and growth.
Trade protectionism benefits emerging industries by allowing companies the necessary time to enhance their production capabilities, develop workforce skills, and build consumer trust before facing international competition in the national market.
Dr Alexander Tziamalis explains that the industrial success of Japan, South Korea, and China can be attributed to their protectionist policies, which allowed these nations to nurture their emerging industries before facing competition from Western markets.
Protectionism can foster social cohesion and patriotism by uniting people within a country, allowing them to take pride in their collective efforts rather than feeling like mere components of a large multinational corporation Additionally, for reasons such as national security, certain industries—particularly those related to military defense, water supply, healthcare, oil and gas, and natural resources—should remain domestically owned and not be outsourced to foreign entities.
Trade protectionism plays a crucial role in preventing dumping, which occurs when larger foreign businesses sell products at prices below their production costs in a local market Without protective measures, consumers may favor these cheaper imports over domestic products, ultimately damaging the local economy.
Trade protectionism presents several disadvantages, notably undermining the principles of free trade It can trigger retaliatory actions between countries, jeopardizing vital international relationships The resulting hostility diminishes specialization between nations, ultimately harming their economies.
Trade protectionism restricts consumer access to foreign goods and unique products from non-domestic companies, creating an uneven playing field where foreign businesses face significant barriers while domestic competitors receive financial benefits Consequently, consumers are often forced to pay higher prices for a limited selection of goods, which may not justify their costs Without competition, consumers are left with few options, diminishing their purchasing power and choice.
Kimberly Amadeo, in article ―Trade Protectionism and Its Methods with Examples,
Pros, and Cons‖ had said: ―In the long term, trade protectionism weakens the industry
Without competition, companies lack the incentive to innovate, leading to a decline in the quality of domestic products As a result, domestic goods may become inferior and more expensive compared to foreign alternatives Additionally, government support can foster complacency among domestic businesses, creating a false sense of security that shields them from robust foreign competition, despite their potential lack of resources to thrive independently.
Trade protectionism policies present two outcomes, yet their disadvantages typically outweigh the advantages Economists express more concern over the potential threats of trade protectionism than its short-term benefits, arguing that it fails to provide long-term solutions for economic issues While countries may seek to protect their economies and safeguard jobs, the implementation of trade protectionism often yields minimal immediate benefits Ultimately, such measures not only harm export partners but also negatively impact the country's own economy.
THE TREND OF TRADE PROTECTIONISM AND ITS EFFECT ON
Trade protectionism trend in the world
The WTO oversees G20 trade measures impacting goods, including trade defense, tariffs, export taxes, and various restrictions A recent report indicates that over 80% of discriminatory measures enacted by G20 nations since 2008 are still in effect, highlighting a trend where protectionist policies are more frequently introduced than eliminated While the report does not quantify the effects of protectionism on trade, it underscores the persistent nature of these measures within G20 economies.
The European Commission's monitoring of trade-restrictive measures indicates a concerning trend, mirroring that of the WTO, with a significant decline in the removal of such measures and a sharp rise in new ones The Commission concludes that protectionist policies are increasingly prevalent in the trade agendas of numerous countries, including some G20 members, despite their formal pledges to combat protectionism.
Despite global commitments to combat protectionism, many countries continue to implement trade barriers The European Union supports its farmers through subsidies and restricts imports of inexpensive agricultural goods In 2016, G20 leaders reiterated their opposition to protectionism; however, the ten nations with the most trade barriers are all G20 members Russia leads with 33 recorded measures, including 16 at the border, 14 behind the border, and 3 trade-distorting subsidies Brazil, China, and India follow closely, each maintaining 23 active trade barriers.
(Source: https://www.gisreportsonline.com/)
China faces accusations from both developing and developed nations regarding unfair trade practices, including currency manipulation, intellectual property theft, dumping, and foreign equity restrictions, which hinder free trade For example, the United States has lodged a complaint with the WTO, highlighting China's imposition of substantial capital requirements that restrict US banks' market entry and the exclusion of US telecommunications companies Similarly, India has criticized China for its dumping practices.
The United States leads in implementing trade protection measures, particularly under the Trump administration, which has adopted a more protectionist approach to global trade Key actions include withdrawing from the Trans-Pacific Partnership, seeking to renegotiate the North American Free Trade Agreement, and enforcing a 35 percent tax on imported cars Additionally, the administration has threatened China with a 25 percent tax on its exports to the U.S., potentially resulting in significant consequences for international trade dynamics.
US and other world economies
Many American manufacturers support the administration's efforts to combat the influx of inexpensive foreign goods, believing that government assistance is crucial However, consumers and businesses reliant on steel, aluminum, and solar modules argue that tariffs will increase prices, threaten domestic companies, and ultimately lead to job losses Additionally, some proposed measures may breach existing trade agreements, potentially provoking retaliation from other nations.
Figure 2: The USA imposes the highest number of protectionist measure
(Source: http://www.businessinsider.com)
1.2 Protection trends in specific market sectors
Despite President Trump's claims that the US is not in a trade war with China, escalating economic tensions suggest otherwise In April 2018, Washington imposed 25 percent tariffs on $50 billion worth of Chinese imports, marking a significant step in Trump's protectionist agenda, as noted by Justin Jacobs in "China-US trade war heats up." While the energy sector is not the primary focus of this conflict, it is affected, particularly with specialized steel tubes and pipes used in oil and gas drilling, as well as components for offshore platforms, now subject to these tariffs.
In recent years, China has emerged as a crucial player in the global oil and gas supply chain, making US tariffs significantly impactful on the economics of new pipelines and drilling initiatives Despite a surge in American oil production, prices remained stable in 2018, bolstered by confidence in robust global economic growth that is anticipated to sustain demand, particularly driven by both the US and China.
The US, EU, and India have imposed significant tariffs on Chinese solar panels, accusing China of dumping these products at artificially low prices to undermine competition Following the Trump administration's announcement of a 30 percent tariff on imported solar panels, primarily from China, the global solar industry has been shaken The EU renewed its tariffs on Chinese panels in September 2017, while India enacted a steep 70 percent import duty on solar panels from both China and Malaysia These measures reflect a broader effort by Brussels, Delhi, and Washington to protect their domestic markets from what they perceive as unfair pricing practices by China.
The rise of trade protectionism in countries like India, Japan, the US, and the UK poses significant risks to the automobile sector, impacting international trade and disrupting supply chains This trend complicates supply chain management and increases costs across the industry, threatening the stability of the global automobile market and parts availability.
According to Steve Garnsey in "New wave of protectionism threatens the automotive sector," trade protectionism policies primarily target raw materials and components, including aluminum wheels, screws, molybdenum wire, and various types of steel These materials have been subjected to anti-dumping duties imposed by the European Commission in 2016, which will inevitably increase input costs for manufacturers However, Garnsey notes that the lengthy process of a full anti-dumping investigation, which takes approximately 15 months, provides supply chain managers with ample time to seek alternative suppliers, even if it means incurring higher costs This situation ultimately benefits the automotive industry by allowing it to adapt to changing market conditions.
General tariffs have been a longstanding aspect of international trade, with the EU imposing a 10 percent duty on US-exported cars, while the US has a 2.5 percent tariff on EU vehicles President Trump sought to renegotiate these tariffs as part of the North American Free Trade Agreement (NAFTA), aiming to establish bilateral trade deals that would revitalize US manufacturing and create jobs.
Senior leaders in the global automobile industry, including Matthias Wissmann, president of the German Association of the Automotive Industry (VDA), have expressed significant concern over potential restrictions within NAFTA Wissmann cautioned that if the US were to implement import duties or trade barriers, it could negatively impact the economy in the long run He emphasized that in an era of globalization and interconnected value chains, maintaining strong trade relations is crucial for economic growth.
1.2.3 In steel and raw material sector
Since 2015, the trend of trade protectionism has intensified, largely driven by a surge in Chinese exports that began in 2013 This increase in exports has led to China accounting for the entire growth of global steel exports during this period.
In early 2017, US imports remained steady despite domestic demand, but the sources of these imports have changed significantly While overall import levels were comparable to those in early 2012, there has been an increase in materials coming from Japan, Brazil, Turkey, and Canada Conversely, imports from China, South Korea, Vietnam, and Mexico have decreased.
Effect of trade protection in Vietnam
Despite US protectionism, Vietnam's exports remained robust, with the General Statistics Office reporting that the US continued to be the largest market for Vietnamese goods in the first half of 2017, reaching USD 19.6 billion—a 9.5 percent annual increase Although this growth rate was lower than the 12.8 percent observed in the same period of 2016, the Ministry of Industry and Trade attributed the slowdown to weaker-than-anticipated growth in the US economy, highlighting that Vietnam's 9.5 percent export growth to the US is still a commendable achievement.
The Ministry of Industry and Trade (MOIT) noted that the US exit from the Trans-Pacific Partnership (TPP) dampened expectations for enhanced trade growth with the US, the world's largest economy However, this withdrawal is unlikely to significantly impact US investment and trade with Vietnam, both now and in the future While Vietnam is among the countries contributing to the US trade deficit, it is not a primary target for concern Notably, a substantial portion of Vietnam's exports to the US, including equipment, computers, and electronic components, are manufactured by American companies operating in Vietnam, according to Nhan Dan news.
Vu Tien Loc, Chairman of the Vietnam Chamber of Industry and Commerce, emphasized that regardless of the TPP's status, the US continues to be a key trading partner and investor for Vietnam While the future of the Vietnam-US economic relationship remains uncertain due to the US administration's stance, businesses are hopeful for new bilateral and multilateral agreements to enhance trade and investment The Ministry of Industry and Trade (MOIT) has projected that Vietnam's exports to the US could exceed USD 40 billion.
2017 and the US will remain the largest export market of Vietnam
Vietnamese exports to the US face significant challenges due to increasing trade protectionism, particularly in the form of technical barriers and stricter quality and food safety regulations These regulations, such as those concerning pesticide residues in rice and antibiotic residues in seafood, have adversely impacted Vietnam's agricultural and seafood sectors The Ministry of Industry and Trade (MOIT) emphasizes the necessity for long-term measures to improve the quality of Vietnamese food products, ensuring compliance with safety standards to sustain and grow market share in the US.
To safeguard the US economy, potential measures like increased anti-dumping duties and technical trade barriers may be implemented Vietnamese industry leaders have expressed concerns that three sectors—fisheries, steel, and electronic components—are likely to face significant impacts if Trump's protectionist policies are enacted.
Analysts have cautioned that Vietnamese exports may encounter significant challenges due to anticipated changes in US economic policies To navigate these uncertainties, Vietnamese businesses must enhance their competitive edge and gain a comprehensive understanding of US regulations Additionally, experts recommend that exporters diversify their markets and focus more on domestic opportunities.
The potential imposition of broader tariffs by the US on China could significantly disrupt the cross-border supply chain, impacting Vietnamese exports to the Chinese market, which serve as essential inputs for Chinese exports This situation will similarly affect all economies intertwined in the US-China value chain As Chinese firms confront increased tariffs, they may shift their raw material exports to Vietnam to sustain operational balance, consequently influencing local industries within Vietnam.
Vietnam's exports are projected to reach USD 19.1 billion by the end of the first quarter, based on Trading Economics' global macro models and analyst forecasts In the next 12 months, exports are expected to decline slightly to approximately USD 18.5 billion However, long-term projections indicate that Vietnam's exports will trend towards USD 24.3 billion by 2020.
Rice: With trade protectionism and technical barriers set by many import markets,
Vietnam, the world's second-largest rice exporter, is encountering significant challenges, including a sevenfold decrease in farmers' income over the past decade Exporters face numerous barriers imposed by importing countries, requiring them to navigate complex procedures and meet stringent requirements related to storage facilities and agricultural practices to secure export licenses Even after obtaining these licenses, businesses must seek approval from the Vietnam Food Association to clear customs for their shipments, complicating the export process further.
Since 2012, Vietnamese rice export revenue has been on a downward trend, peaking at USD 3.7 billion that year According to the General Department of Vietnam Customs, this decline has continued, with the Ministry of Agriculture and Rural Development reporting that in the first half of 2017, rice exports totaled 2.8 million tons, generating USD 1.3 billion, a decrease from USD 2.2 billion in 2016.
Figure 4: Vietnamese Rice Export Revenue
(Source:General Department of Vietnam Customs)
Vietnam's seafood exports, particularly shrimp and basa fish, face technical barriers imposed by the US In response, Vietnam is committed to enhancing its efforts to maintain access to the US market while also diversifying its export markets to reduce dependency Potential alternative markets include the EU, Japan, South Korea, Australia, and regions in the Middle East and Africa.
The United States is the largest market for Vietnamese fisheries, accounting for 40% of the country's shrimp exports In September 2016, the US implemented new anti-dumping duties on shrimp, increasing the rates fivefold to address the surge in Vietnamese shrimp exports Additionally, the US is anticipated to introduce technical barriers to further safeguard local producers, alongside existing measures such as anti-dumping duties and regulations concerning product origin and the use of chemicals and antibiotics.
As of mid-March 2018, Vietnam's seafood export revenue reached USD 1.37 billion, marking a 17 percent increase compared to the previous year, and positioning seafood among the eight products with export revenues exceeding USD 1 billion, according to the General Department of Vietnam Customs However, despite this strong performance, achieving the target of USD 9-10 billion in seafood exports for 2018 may be challenging due to various technical barriers imposed by major markets, as reported by Nguoi Lao Dong newspaper.
The Secretary General of the Vietnam Association of Seafood Exporters and Producers (VASEP) has expressed concerns that the high antidumping tariffs imposed on Vietnamese tra fish by the United States are negatively impacting the country's seafood exports VASEP, along with its member enterprises, has voiced strong objections to the US Department of Commerce's recent decision to implement what they consider unreasonable anti-dumping duties during the 13th Period of Administrative Review.
Data from the Ministry of Industry and Trade shows Vietnam‘s tra fish exports to the
In 2017, seafood exports to the US fell significantly to USD 344.5 million, primarily due to anti-dumping tariffs and stringent catfish inspections implemented in August Furthermore, the final quarter of 2017 experienced a substantial decline in seafood shipments, with a contraction of 30 percent.
Figure 5: Vietnamese seafood export in 2017 (USD mil.)
(Source: Vietnam Association of Seafood Exporters and Producers)
RECOMMENDATION
Orientation
In the face of rising protectionism, collaboration between businesses and governments is crucial Enterprises must safeguard their rights and interests, while governments should act as representatives and supporters, striving to protect the legitimate interests of exporters This partnership is essential for gaining valuable experience in addressing challenges and providing support to businesses in future incidents.
Policymakers globally are seeking ways to address rising protectionist sentiments and anti-globalization trends, aiming for continued economic benefits through association, integration, and trade liberalization However, these initiatives have yet to yield significant results Moving forward, Vietnam must focus on key areas to enhance its economic strategy.
The government and relevant ministries must proactively monitor the situation, anticipate challenges, and develop timely response strategies to support enterprises while safeguarding national interests As Vietnam encounters an increasing number of trade remedy cases, particularly antidumping and anti-subsidy measures, it is crucial to address the pressures of trade protectionism and adapt to global trends effectively.
Enterprises must adapt to the growing trend of trade defense, as protectionism in import markets is becoming increasingly evident A recent survey by the Vietnam Chamber of Commerce and Industry revealed that 63% of 1,000 businesses are aware of trade remedies but lack understanding It is crucial for businesses to familiarize themselves with trade defense mechanisms Additionally, to ensure that safeguard measures align with international practices and minimize the risk of legal challenges from other countries, Vietnam must conduct a thorough and objective assessment of safeguard conditions.
To remain competitive, Vietnamese enterprises must reform their production processes by investing in advanced technology and adhering to higher standards Meeting the stringent requirements of the import market is crucial, as this has been a significant challenge for local businesses Such transformations not only ensure the sustainability and growth of each company but also enhance production quality and mitigate the risks associated with potential lawsuits.
Vietnam must proactively explore new markets to counteract the rising trend of global trade protectionism, which is hindering the circulation of commodities amid a sluggish global economic recovery By researching and identifying alternative markets, Vietnam can diversify its export market structure and reduce its heavy reliance on major markets that are increasingly leaning towards trade protection.
Recommendation
Vietnam must closely monitor and accurately evaluate the rise of protectionism to implement timely and effective strategies This proactive approach will help mitigate potential damages while also capitalizing on the opportunities presented by this trend.
The Ministry of Industry and Trade must actively regulate import and export activities while enhancing its role in forecasting potential trade protection measures affecting Vietnamese goods Additionally, it is crucial to provide materials and consultancy on market characteristics and technical standards specific to each country, particularly in relation to international law This approach will help mitigate risks associated with a lack of understanding among Vietnamese exporters.
Vietnam should proactively restructure its export markets to diversify and minimize reliance on volatile markets, particularly those influenced by protectionism and where it has a significant trade surplus, as this may make its goods vulnerable to safeguard measures Additionally, Vietnam needs to develop a strategy for exporting goods and services that complement rather than directly compete with those from countries facing protectionist measures.
Vietnam should prioritize the development of its domestic market to offset declining exports while enhancing local production capabilities This strategy aims to boost competitiveness, reduce reliance on imports, and maintain macroeconomic stability By increasing the localization rate and adding value to manufactured goods for both domestic consumption and exports, Vietnam can proactively mitigate issues related to product origin in the future.
The government should focus on streamlining administrative processes and fostering a welcoming environment for foreign investors in Vietnam This approach will enhance export capabilities and facilitate the introduction of modern production technologies, ultimately leading to improvements in domestic manufacturing.
The government must enforce strict regulations on the trade of smuggled goods, particularly along the Vietnam-China border This includes the detection and rigorous prosecution of trade fraud cases such as tax evasion, counterfeit products, and imitation goods, which disrupt the market and negatively impact overall production, business operations, and import-export activities.
Vietnam must advance its socio-economic development and fully adhere to commitments made upon joining regional and international organizations to be recognized as a "market economy." The government should implement five key regulations: ensuring minimal state influence on resource allocation and enterprise decisions, preventing distortions in equitized firms' activities, establishing a robust corporate governance system, upholding property laws alongside an effective bankruptcy mechanism, and fostering an independent financial sector governed by proper oversight and guarantees.
Vietnam prioritizes the promotion of diplomatic relations and strategic partnerships globally, emphasizing its readiness to be a friend and strategic partner to all nations This cooperative approach facilitates the expansion of Vietnamese goods in international markets, helping to mitigate challenges related to exports that may arise from diplomatic, military, ethnic, or religious conflicts.
As the world shifts towards nationalism and populism, Vietnam must adopt a realistic approach by focusing on its comparative advantages, particularly in information technology (IT) By leveraging its strengths in IT, Vietnam can enhance e-commerce and foster national integration, positioning itself favorably in the evolving global landscape.
The government must foster a culture of entrepreneurship within society by promoting the spirit of startups in educational institutions This involves integrating startup concepts into school curricula to help children understand the fundamentals of entrepreneurship from an early age.
Particularly, to start a successful business, the Government also needs to make decisive decisions, creating favorable conditions for businesses and investors to take risks in the start-up
Once Vietnam is acknowledged as a legitimate market economy by the international community, particularly by key trade partners like Japan, the US, and the EU, significant reductions in tariff barriers for Vietnamese exports will occur This recognition will notably influence the criteria for imposing anti-dumping taxes and other safeguard measures on goods from Vietnam.
Vietnamese enterprises must adapt to the growing trend of global trade protectionism The Vietnam Chamber of Commerce and Industry reports that around 63% of surveyed businesses are aware of trade protection measures but lack a thorough understanding of the issue To navigate this landscape effectively, Vietnamese companies need to adopt an objective and comprehensive perspective on trade protectionism, enabling them to implement suitable tariff policies in line with international standards and mitigate the risk of legal actions from other countries.
To enhance production capacity and competitiveness, domestic manufacturers must prioritize continuous technological innovation and the integration of science and technology in their operations Vietnamese enterprises, particularly small and medium-sized ones, should pursue joint ventures and partnerships with both domestic and international companies to strengthen their self-sustainability in the global market Additionally, diversifying export markets and product offerings will be essential for minimizing potential losses Investing in the expansion of a nationwide distribution network and fostering investments in the retail systems of both domestic and foreign investors will further support the promotion of domestic goods and ensure a strong presence in the local market.
Vietnamese enterprises can gain valuable insights from how foreign direct investment (FDI) firms navigate trade barriers As global economic integration deepens, many countries are increasingly implementing non-tariff policies to safeguard their production Rather than fearing anti-dumping lawsuits when entering international markets, businesses should enhance their legal knowledge and advocate for protective measures for domestic products This approach is crucial, especially as the domestic market, particularly the steel sector, is experiencing a robust recovery driven by the construction industry.
To effectively navigate non-tariff barriers, particularly those related to product quality, corporate responsibility, and labor standards, businesses must enhance their internal capabilities This involves prioritizing human resource development, integrating advanced science and technology in production, and refining management systems to lower costs and boost market competitiveness Additionally, companies should stay informed to adapt their production and business strategies in response to changing conditions.
CONCLUSION
The increasing wave of protectionism poses a significant threat to global trade, as prominent political leaders in the United States and other countries exhibit heightened animosity towards globalization In the US, this trend is evident through the withdrawal from the Trans-Pacific Partnership (TPP), threats to impose higher tariffs on imports from China and Canada, and the push to renegotiate the North American Free Trade Agreement (NAFTA).
Protectionism affects economies worldwide, from major markets like the EU and China to smaller nations in South America and South Asia, including Vietnam It is crucial for countries to resist this trend and collaborate with others to foster an open economy, supporting multilateral efforts and regional partnerships.
To effectively address the global rise of protectionism, Vietnam must actively promote the benefits of free trade and implement policies that manage adjustment costs while ensuring the equitable distribution of liberalization benefits By doing so, Vietnam can foster community confidence in trade and foreign investment initiatives.
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