HANOI -- Vietnam's real gross domestic product rose 6.71% on the year in the April-June quarter, marking one of the highest growth rates among key Southeast Asian economies as it shapes up into an alternative export hub to China.
Shipments from Vietnam to the U.S. are on the rise as companies move production here from China. But the trend could widen Vietnam's trade surplus with America, possibly drawing the ire of President Donald Trump.
GDP growth outperformed second-quarter expectations in data out Friday from the General Statistics Office. This follows the 6.82% growth for January to March.
Haiphong, a major shipping hub near the Chinese border, has especially thrived since the U.S. implemented its first round of punitive tariffs on China last July. The city logged a 16% jump in real GDP last year.
Many representatives from Chinese corporations have been spotted at Deep C, Haiphong's largest industrial park, scoping out potential sites for new factories. New Chinese investment in Vietnam, based on approved projects, has topped $1.67 billion so far this year -- roughly quintupling from the same period in 2018.
Vietnam has long been a top choice in "China plus one" manufacturing, where companies set up production bases in one other market in addition to mainland China, thanks to its relatively cheap labor costs. U.S. tariffs on China have only solidified its position.
Vietnamese exports to the U.S. grew 27% on the year in the first half of 2019, contributing to a 7% increase in total exports to $122 billion.
Other data point to economic strength as well. Steel production at blast furnaces affiliated with Taiwan's Formosa Plastics have increased, Oil refineries operated by such players as Japan's Idemitsu Kosan are running at full capacity.
Final consumption expenditures, which make up nearly 70% of Vietnam's GDP, increased 7% on the year for the April-June period. While condominium sales are starting to dull in urban areas as prices rise, new supermarkets and convenience stores continue to pop up on the growth of the middle class.
Exports to the U.S. could grow further as the trade war continues. Shipments from Haiphong used to first be brought to Singapore or Hong Kong on smaller vessels, where they were transferred onto transoceanic carriers headed to the U.S. But thanks to recent work at the port, large containerships capable of sailing to the west coast of the U.S. have been able to dock there starting May.
"This cuts shipping times to the U.S. by about a week," a source at an American logistics company said.
If the U.S. and China both impose a 25% tariff on all products shipped from each other, Vietnam will enjoy an annualized 1.2% boost to GDP, the Mizuho Research Institute said in a June 4 report.
But Washington worries that a portion of Vietnam's growing shipments actually originate from China and are only passing through in an attempt to bypass tariffs targeting Beijing. Trump said this week that "a lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China" and hinted at tariffs on the Southeast Asian country.
The Vietnamese government is already beefing up staffing at customs.
The U.S. Treasury Department added Vietnam to its currency practices watchlist in May. If the Vietnamese trade surplus with the country continues to rise, Washington could ramp up criticism of its currency policy as well.