SINGAPORE (Aug 5): There is no denying the success that is Vietnam. From its impressive GDP growth to the rapid development of its infrastructure and economy, the country is, as one expert put it, “the blue-eyed boy” of Southeast Asia.

On paper, it does indeed appear that Vietnam is on an unstoppable growth trajectory. After the introduction of its economic and political reform policy, called the Đổi Mới, in 1986, the country grew rapidly, propelled by the twin engines of export manufacturing and domestic demand. Today, its GDP value is about US$255 billion ($350 billion), and the World Bank forecasts GDP growth for 2019 at a robust 6.6%.

This growth is reflected in the affluence that is rapidly growing among the Vietnamese. In fact, budget carrier VietJet Air grew phenomenally last year, with around 50% jumps in both revenue and pre-tax profit from its aviation business. Since taking flight in December 2011, it has grown to post more than US$2 billion in revenue last year, on the back of soaring demand for travel, both within and out of Vietnam.

Yet the lush and resource-rich country bordering China, Laos and Cambodia is finding itself stuck between a rock and a hard place in the ongoing trade spat between the US and China. The trade war has seen the two world superpowers imposing tit-for-tat restrictions on each other since 2018, with the US slapping higher tariffs on Chinese goods, and the Chinese retaliating by withholding crucial exports from the US market.

It is a war with no winners, it would appear — except for Vietnam. Just recently, Japanese investment bank Nomura released a report that found Vietnam to have the most to gain, among regional economies, from the trade war, which has shifted supply chains. Nomura notes that Vietnam’s economy has been boosted by almost 8% because of the shift in production.

As a result, Vietnam now finds itself walking on diplomatic eggshells, after being accused by US President Donald Trump of being a “conduit” for Chinese companies to circumvent US tariffs. Chinese businesses are allegedly finishing off almost-completed products in Vietnam, so as to be “made in Vietnam” and in doing so, avoid the tariffs.

Already, Vietnam is feeling the retaliatory effects of these two warring superpowers being their respective largest trading partners. During an interview with Fox Business Network in June, responding to a question on whether he was considering tariffs on the country, Trump said Vietnam was “the single worst abuser of everybody”. Shortly after, the US imposed a 400% increase in tariffs on steel products from Vietnam.

For context: Vietnam’s total exports to the US are worth nearly US$40 billion, and its exports to China are worth US$21 billion. Suffice to say, it cannot afford to offend either party. However, the US and China are likely also mistaken in thinking they can bully Vietnam into submission.

Lye Liang Fook, ISEAS-Yusof Ishak Institute senior fellow and coordinator of its Vietnam Studies Programme, tells The Edge Singapore that Vietnam is a proud country, and officials will brook no intimidation from either side.

“I think it’s in their psyche, their sense of pride in themselves, being Vietnamese — that they were the ones who fought the Americans, French, and even Chinese, and stood victorious. So, there is a strong sense of national pride, being Vietnamese,” says Lye. “There is this steely determination in them to succeed against all odds. But historically, Vietnam has always been wary of Chinese dominance.”

Indeed, the relationship between Vietnam and China has never been easy. They had clashed in the Sino-Vietnamese war in 1979, when a brief border war was fought after China launched a punitive expedition in response to Vietnam’s invasion and occupation of Cambodia in 1978. In 2014, China-Vietnam relations were tense over Chinese state-owned China National Offshore Oil moving its Hai Yang Shi You 981 oil platform into disputed waters in Vietnam. Just last month, the ongoing South China Sea dispute with China intensified over Vietnam’s extension of operations at oil rig Hakuryu-5, in Vanguard Bank, the westernmost reef in the resource-rich Spratly Islands. China has always reacted strongly to any expedition or oil-finding missions in the South China Sea, but Vietnam shows no sign of backing down on this issue.

“[Vietnam] even held demonstrations against China back in 2014,” Lye says. “And, there are also others who say that Trump’s tweets about Vietnam, in context, are not as serious because at the moment, the US cannot find substitute markets for its products.

“Also, the US in its Indo-Pacific strategy, needs partners. And one of the key partners is Vietnam. So, from the US perspective, there is also a limit to how much it can upset Vietnam.”

Nevertheless, this is a situation of which Vietnam must keep abreast. “It’s like walking a tightrope, really,” says Lye. For now, Vietnam is still on its forward trajectory of growth, and it seems nothing can stop it.

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