Donald Trump is now the President elect of the United States. This stunning upset means an agenda of completely unexpected policies are about to unfold on the world stage, and all countries engaged in any form with the United States will have to adapt. Vietnam is one of those countries. We outline four ways a Trump presidency could shape Vietnam’s trajectory in the coming years.
Decreased Free Trade
The Trans-Pacific Partnership (TPP) was going to be one of the largest drivers of economic growth for Vietnam in the coming decade. Its promises of expanded trade drew foreign direct investment to a record $11.3 billion. The Consumer Confidence Index surged to 105, the highest level since the second quarter of 2015. However, Trump has openly and fervently criticized it as a “horrible” deal for U.S. jobs.
Furthermore, Trump has vowed to deploy measures against countries like China for currency manipulation and piracy of intellectual property. Such measures will be targeted primarily against countries with which the U.S. has a trade deficit. Since the U.S. had a $31 billion trade deficit with Vietnam in 2015, Trump may deploy similar tactics in his relationship with Vietnam as well. The combination of a TPP denial and other damaging trade policies will take a toll on Vietnam’s $162 billion export sector – which only recently took a hit from the Samsung debacle. Lower consumer confidence could also impact the reduce travel volume and impact the growth trajectories for companies like VietJet – Vietnam’s fast rising aviation star.
Withdrawal of Military and Capital Aid
The South China Sea crisis has been a pressing matter for Vietnam. While Obama has warned Beijing against aggression in the matter, Trump’s “America First” perspective indicates he may adopt a less proactive stance in the Pacific theater. While he has not issued an official statement on how he would handle China-Vietnam relations, his comments on U.S. interventions in Libya and Iran are likely indicators of a policy of less global engagement.
Trump may also be less enthusiastic to support organizations traditionally dependent on American aid. Trump and the Republican Congress could reduce U.S. flows to organizations such as the United Nations (UN), World Health Organization (WHO), and World Bank (WB). Many of these organizations have been assisting Vietnam in developmental initiatives for the past 23 years. A decrease would not bode well for ongoing projects.
Removal of Climate Initiatives
Trump’s apathy towards climate change is well-documented. While Vietnam was able to make some progress earlier in the year when it received $371 million from the World Bank to stimulate green developmental projects, it can expect future inflows to be less generous. As mentioned in the paragraph above, the U.S. will likely shrink capital flows to most organizations helping countries like Vietnam combat climate change. The onus to make Vietnam an environment-friendly nation will be left almost entirely on the Vietnamese government.
A Stock Market Correction
Vietnam’s Ho Chi Minh City Stock Index (VNINDEX) experienced a surge of euphoria when the Trans Pacific Partnership (TPP) was announced. Now that chances of its ratification have fallen drastically, there will likely be a correction in the index. The sectors most likely to be damaged are exporters who were depending on the TPP for less trade regulations. On a global macro basis, many analysts are suspecting that Trump’s trade policies may push global economies into a recession. Vietnam’s economic well being is based on rich countries consuming it products (i.e. coffee) or needing it products (i.e. rubber) for manufacturing. A global recession will put pressure on Vietnam’s GDP.
Lastly, Trump has promised deregulation of oil production. Should this come to pass, global oil prices will fall as US production increases. Since Vietnam is Asia’s largest exporter of oil behind China and India, its oil revenue will be hurt. In 2015, Vietnam oil revenue was appropriately $2.7 billion. A global recession and drop in global oil prices would hamper its chances of achieving a 6.7% economic growth target. This is turn will put downward pressure on Vietnamese stocks.