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Vietnam shows limits of Trump's 'Buy American' rhetoric

Bid to reshore jobs hits wall as companies seek diverse supply chains

HO CHI MINH CITY/NEW YORK -- As Vietnam enjoys an export boom due to more and more companies leaving China, Hanoi can in part thank a helping hand from an unlikely place: Washington.

Examples of this are abundant. This year two Vietnamese companies supplied machine parts to a Canadian manufacturer, while a slew of textile companies exported personal protective equipment to the U.S., Spain, Ghana and Japan. What they have in common is that all of the companies received backing -- in one form or another -- from the U.S. government.

As companies exit China, the administration of U.S. President Donald Trump has tried to bring them to American shores. But instead, they have gravitated to third countries to spread out risk. Vietnam has benefited from this diversification, in some cases with the support of the U.S. -- demonstrating that Washington's trade policy is more complex than a "Buy American" slogan.

U.S. officials recognized early on that not all investment would come home.

"Among President Trump's goals in the U.S.-China trade war was to pressure American companies to shift production out of China, which he argued would bring manufacturing back to America and protect U.S. jobs," said Barbara Weisel, who was assistant U.S. trade representative early in Trump's term and is now managing director at Rock Creek Global Advisors. "U.S. officials recognized that many companies would choose not to relocate to the United States but instead move to other countries."

Increasingly, American companies from Apple to Nike are buying from suppliers in Vietnam, making it a prime example of those "other countries."

It also demonstrates the challenge for U.S. officials abroad. Even as they promote American manufacturing, some aspects of U.S. policy also benefit Vietnamese exports. For instance, a $22 million program run by the U.S. Agency for International Development supports Vietnam's small and medium enterprises. Known as LinkSME, the program connects them to global companies, many of which want to source in Vietnam as they diversify supply chains.

That is how Canada's Metosak, which manufactures machine components, ended up signing deals with Vietnamese suppliers including JAT. LinkSME has also worked with Truong Son Thinh Textile and other Vietnamese companies to export PPE during the coronavirus pandemic, as well as co-hosting an event matching 60 domestic suppliers with corporations like automakers Mitsubishi Motors, Ford Motor and Thaco of Vietnam.

"Vietnam is a critical node in the global supply chains," Robert Greenan, deputy principal officer at the U.S. consulate in Ho Chi Minh City, said at an event this month focused on diversification and resilience in supply chains.

Businesses left China to cut costs and diversify supply chains, rather than rely on a single country facing trade, geopolitical, and security risks, said Curtis Chin, former U.S. ambassador to the Asian Development Bank.

U.S. officials understand why foreign businesses choose to migrate to Vietnam rather than to the U.S., said Fred Burke, a managing partner at law firm Baker & McKenzie (Vietnam). Burke often speaks to officials when they seek private-sector input.

"I think they're realistic enough to know that the investment is going to where it's going to be best used," Burke told Nikkei.

Vietnam is widely considered a winner in the China-U. S. trade war, helped by its lower wages, political stability, multiple trade deals and location along shipping lanes.

Even as Vietnam grabs a bigger slice of world exports, diversification in trade flows is also in the U.S. interest, said Chin, now an Asia fellow at the Milken Institute, an economic think tank in Santa Monica, California.

"The ongoing pandemic has underscored the risks of overreliance on supply chains and on sourcing from China," he said.

The U.S. and Vietnam are growing closer. Wednesday marks the start of the annual Indo-Pacific Business Forum, which the U.S. calls one of its marquee trade events in Asia. This year the host is Hanoi.

That does not mean everyone in Washington is happy with the trade diversion from China to Vietnam, whose exports to the U.S. rose 36% from 2018 to 2019, according to the U.S. Census Bureau.

"Trump administration officials grew increasingly frustrated as the election approached and trade deficits continued to grow, including with Vietnam," Weisel said. So they began an investigation into Vietnam's trade practices this month, which "appears intended, among other things, as a warning to U.S. companies that only by moving operations to America will they be safe from potential U.S. trade action."

There is little sign that the trade war pushed U.S. shoppers to "Buy American," as Trump said. The trade deficit, or difference between imports and exports, jumped 10% from 2017 to 2018, then dropped 2% in 2019.

"So far we see little evidence of reshoring of manufacturing to the United States," Edward Alden, senior fellow at the Council on Foreign Relations, said.

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