Biggest rice exporter

Projects such as Bunge’s agribusiness are expected to increase in number through stronger US ties. Photo: Le Toan

In his first few days in office five years ago, President Donald Trump withdrew from the Trans-Pacific Partnership, which was a pillar of the Barack Obama administration’s pivot towards Asia. The remaining 11 member states have since reframed the agreement as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and President Joe Biden’s commitment to rebuilding relations with allies has sparked speculation about the US returning to the fold.

Fitch Solutions under global ratings firm Fitch Group told VIR in a statement that Vietnamese trade would receive a surefire boost should new Biden decide to rejoin the CPTPP.

“Biden stated in 2019 that the US should renegotiate parts of the CPTPP and re-assemble a coalition to counterbalance China’s perceived expansionist policies. The Trump administration withdrew from the original deal in 2017 under the pretext that it would harm US workers. A scenario where the US rejoins the CPTPP would deliver substantial tailwinds to Vietnamese exports to the US from lower tariffs in major export categories,” Fitch said.

In fact, the CPTPP may offer great windfalls to the US. Statistics from law firm Duane Morris Vietnam LLC showed that the population of the CPTPP countries exceeded 513 million people as of October 2020. The CPTPP countries account for nearly 45 per cent of US total exports and 37.6 per cent of US general imports in 2014. By cutting over 18,000 taxes in regards to CPTPP, there would be a great benefit for American importers and exporters by enabling them to enter new markets.

As the United States International Trade Commission estimates, the US exports of goods and services to the world would expand by $27.2 billion by 2032 thanks to the CPTPP, while US imports would expand by $48.9 billion.

Oliver Massmann, general director of Duane Morris Vietnam LLC, pointed out various benefits for the US if it rejoins the CPTPP. He took public procurement as an example. “Dropping the CPTPP means that the US has lost access to government procurement of other CPTPP countries, which amounts to $1.47 trillion,” he said in a letter recently sent to President Biden.

Massmann cited the International Monetary Fund’s World Economic Outlook database in October 2019 as stating that in Vietnam, government procurement’s percentage of GDP in 2019 was 12 per cent or $40.87 billion.

The great advance of the CPTPP will be that even Vietnam, Malaysia, and Brunei, which have not agreed to coverage of their government procurement before and are currently not covered by an existing US free trade agreement or government procurement agreement of the World Trade Organization, have undertaken to do so.

“This is a key export opportunity for US goods producers and services companies. Currently Chinese companies profit the most. About 90 per cent of power, mining, manufacturing, ferrous, and chemical projects of state-owned companies in Vietnam are awarded to Chinese contractors,” Massmann noted.

Furthering ties

Early this month, Vietnam’s Deputy Prime Minister, Minister of Foreign Affairs Pham Binh Minh held phone talks with US Secretary of State Antony Blinken. Both sides agreed bilateral ties have advanced across fields over the past 25 years, and pledged to cooperate in deepening ties “in a more comprehensive manner, with a focus on economy-trade-investment, overcoming war consequences, enhancing maritime capacity, fighting COVID-19, and adapting to climate change.”

It is expected that in 2021, there will be more connections and talks between both nations’ high-level leaders, investors, and enterprises.

Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi (AmCham) told VIR that he expected US-Vietnam trade and investment cooperation to further flourish thanks to several reasons including the US new administration’s positive stance towards both nations’ bilateral ties.

“As major investors here, American companies have an interest in Vietnam’s continued success. It is a new year and we welcome the incoming leaders in both countries,” Sitkoff said. “American investors are optimistic about business prospects in Vietnam and we support efforts to create a modern economy that will attract future investment and high-paying jobs for Vietnamese people. We will continue to work on lowering barriers to trade, to help the Vietnamese government make it easier to do business, and to create a high-standard, transparent, and stable business environment to ensure that all investors have fair access to that opportunity.”

Statistics from Vietnam’s Ministry of Planning and Investment showed that as of January 20, US investors registered over $9.51 billion in Vietnam for more than 1,000 valid projects, making the US the 11th-largest foreign investor in the Southeast Asian nation. In January alone, the US ranked fourth in investment in Vietnam, with total newly-registered capital of $122.2 million.

Currently many US firms are exploring opportunities in Vietnam, such as Morgan Stanley, ACORN International, General Dynamics, Nue Capital LLC, BlackRock’s Asian Credit, Lockheed Martin International, Smart City Works, Google, Columbia University, and USTelecom.

Positive impacts

Fitch Solutions believed that the incoming Biden administration will have largely positive implications for Vietnam.

“The impact on Vietnam’s trade growth should be positive, given that Biden will take a more pragmatic approach towards Vietnam’s growing trade surplus with the US, which means a lower risk of punitive trade tariffs than under Trump’s currency policies,” the Fitch Solutions statement read.

“Trump-era trade tariffs on Chinese exports and rising geopolitical tensions between China and the West have also set in motion a relocation of manufacturing to Vietnam, which is likely to continue. Should the US decide to join the CPTPP in the coming years, Vietnam would also benefit from accelerated trade expansion with the US.”

Fitch Solutions further explained that Biden is likely to take a more pragmatic view towards trade developments with its economic partners.

“In particular, we believe that the Biden administration will come to understand that Vietnam’s trade surplus with the US will grow as more manufacturers relocate to the Southeast Asian nation due to the ongoing US-China trade war. Furthermore, while there is bipartisan support in the US for a hardline stance on trade with China, we believe that a desire by the Biden administration to rebuild its relations with its allies would see an easing of the trade tensions with allied countries generated by the Trump administration. Therefore, we believe that the Biden administration will entail lower risk of further US tariffs on Vietnamese exports.”

In 2020, total export-import turnover between Vietnam and the US was $90.1 billion, up from $76 billion in 2019.

Hurdles need removing

Sitkoff from AmCham in Hanoi told VIR that though Vietnam and the US have many common foundations to further cement their trade and investment ties, he hoped Vietnam’s government will take more drastic action to remove obstacles currently facing investors.

“It is critical that US companies and investors here in Vietnam encounter an equal, level, and predictable playing field as a solid foundation, not only to attract new investment, but also to maintain and grow the investment that is already here,” Sitkoff said.

“In addition, we recommend that foreign investment limitations, an overly restrictive legal framework, and burdensome administrative procedures should be carefully reviewed and selectively relaxed to encourage increased US investment,” he suggested. “In our view, by opening its market to more US goods and services, Vietnam can help to rectify the growing trade imbalance between the two countries in a manner that benefits both countries.”

According to AmCham, one of the biggest hurdles for foreign firms including US ones in Vietnam is the tax system.

“While Vietnam’s corporate income tax rate of 20 per cent is competitive, data shows that filing and paying taxes in the country is still too high a burden compared to neighbouring countries. Too many companies are also suffering from what seems to be unfair and non-transparent reassessments with penalties and interest,” said an AmCham statement recently sent to the government. “We hope to see real progress on advanced pricing agreements which create the stability and predictability necessary for integrating into global supply chains.”

New US President Joseph R. Biden was sworn in with his wife Jill Biden by his side, photo: AFP

Last Wednesday many Americans breathed a sigh of relief as Joe Biden was sworn in as the 46th US President without any further incident from those who believe the election was “stolen” from former President Donald Trump.

Instead of attending the ceremony as is tradition, Trump and his family took one last trip on Air Force One to Florida, where he will be based until the former reality TV star decides whether to run for president again in 2024 – or perhaps even endorse a family member for the post.

Alongside Biden, Kamala Harris was sworn in as vice-president, becoming the first woman in American history – as well as the first woman of African-American and South Asian descent – to take on the role.

“Few people in our nation’s history have been more challenged or found a time more difficult than the time we’re in now,” Biden said in his inauguration speech.

He vowed to dedicate his “whole soul” to rebuilding a country battered by disease, economic turmoil, racial inequality, and political division.

The 78-year-old certainly has his work cut out for him, but he rushed into action to put his stamp on the presidency by signing a raft of executive orders within hours of entering the White House.

Biden signed a letter retracting Trump’s decision to leave the World Health Organization, which would have been effective in July. There was widespread criticism and an almost complete lack of international support last year for Trump’s move in the midst of a pandemic.

In the most noteworthy but also most unsurprising move, the US is to be reinstated to the Paris climate agreement. The accord, which looks to curb the heating of the planet, will be much boosted by the return of second-largest emitter of greenhouse gases in the world. Biden has previously warned that climate change poses the “greatest threat to the country”, which was battered by record wildfires and hurricanes in 2020.

“It’s a huge day to welcome in a new president who manifestly is committed to strong, meaningful action,” said Todd Stern, who was the lead US negotiator in Paris. “Rejoining the Paris agreement is just the first step, but it’s a big first step.”

Biden’s top climate adviser, Gina McCarthy, said the new president will look to reverse “more than 100” climate-related policies enacted by his predecessor.

Global rebalance

With Biden pushing climate to the top of his agenda alongside battling the coronavirus pandemic, other strategies and policies are set to take a back seat. Of most concern to many onlookers is how the States will build or rebuild its relationship with countries big and small – something Biden did touch on in his inauguration speech in Washington.

“To those outside our borders, I say this – we will engage with our allies again,” said Biden. “We will lead, not only by the example of our power, but by the power of our example.”

Chuck Hagel, who was a US defence secretary during the Obama administration, said it is unprecedented times for US foreign policy. “We’ve never been in this situation before, domestically and internationally,” he said. “What Biden has to do goes well beyond the first hundred days. He is going to have to move immediately to rebuilding and restoring our alliances, reassuring them that America is back in the game to lead.”

Biden will inherit a long list of early national security challenges involving Russia, for example. Less than two weeks after Biden’s inauguration, the New START treaty with Russia – the last remaining check on the world’s two biggest nuclear arsenals – is set to expire, but both sides have displayed willingness to extend it.

In the Middle East, Biden has vowed to return to diplomacy with Iran, after Trump followed through on promises to undo the Obama-era nuclear pact with Tehran.

But with Iran taking steps to revive its nuclear weapons programme, analysts say picking up where Barack Obama left off is not possible. The Trump administration has, as recently as a fortnight ago, placed further sanctions on the country.

“We are going to see Biden try and leverage some of the more extreme positions that Trump staked out on China, Iran, and Cuba to extract additional concessions and to be able to plausibly claim that any nuclear deal isn’t Obama’s deal and this isn’t Obama’s foreign policy,” said Brett Bruen, a former global engagement director during the Obama administration.

Over in Europe, the new president may have an easier time in strengthening relations with Europe after four years of Trump indifference. “I think he doesn’t have to do much. Biden just has to show up,” said Marina Kaljurand, a former Estonian Foreign Minister who now works in the European Parliament.

Biden will still have to grapple with ongoing disputes, such as in defence spending, but with Trump having shunned much of Europe, many countries on the continent have tasted more life with less overbearing US involvement, and could continue to chart a course to lessen their reliance on American diplomatic and military might, as well as economic influence.

Asian commitments

Kurt Campbell, a former Assistant Secretary of state for East Asian and Pacific affairs, has been appointed to the Biden administration as Indo-Pacific coordinator. According to Japan Times, the 63-year-old has called for confidence-building steps to stabilise US-China ties, including easing visa restrictions and restoring closed consulates.

But although the new president’s methods may be less antagonistic, he has previously echoed many of his predecessor’s complaints about China’s trade practices, accusing the country of stealing intellectual property, dumping products in foreign markets, and forcing technology transfers from American companies.

In addition, Biden has indicated that he will not immediately abandon the “phase one” bilateral trade agreement reached last year, or remove the 25-per-cent tariffs that now affect about half of China’s exports to the States.

“With such high costs and strict limitations on exports, China cannot possibly fulfil its commitment in the phase one agreement to purchase some $200 billion in additional US goods and services during 2020-2021,” noted Zhang Jun, director of the China Center for Economic Studies in Shanghai. “As long as Biden upholds Trump’s confrontational approach, the phase one accord will be fundamentally unworkable, and further progress towards a mutually beneficial trade relationship will be all but impossible.”

Indeed, the outgoing US administration warned that Biden would be “too soft” on China, akin to how Obama dealt with the issue, but experts pointed out that the US was already adopting a tougher stance on China during Obama’s second term in office.

“Obama was already trying to form an alliance to keep China in check, including through the Trans-Pacific Partnership trade agreement that excluded China and that Trump later disavowed,” said Keith B. Richburg, director of the Journalism and Media Studies Centre at Hong Kong University. “More recently, China has joined the Regional Comprehensive Economic Partnership (RCEP), and now this time it is the US on the outside looking in. Biden will have to decide whether to negotiate to join either or both of those pacts.”

These agreements made over recent times are putting the US at a growing strategic disadvantage, explained Zhang Jun in Shanghai. “ASEAN countries – which, collectively, form America’s fourth-largest export market – are likely to shift more trade to their RCEP partners,” he noted.

“The deal is also likely to increase the Chinese demand for agricultural and energy exports from the likes of Australia and New Zealand. Furthermore, by indirectly establishing a free trade zone among China, Japan, and South Korea it will consolidate supply chains in East Asia and the West Pacific.”

While weighing up these huge cross-border entanglements, Americans will be forgiven for looking no further than their own borders as they come to terms with the catastrophic handling of the COVID-19 pandemic. On the eve of the inauguration, Biden memorialised the more than 400,000 Americans who have died from the virus during a vigil in Washington.

The grim milestone was passed earlier that day as the latest figures from Johns Hopkins University show that about 401,128 people have now been killed by the virus in the US amid more than 24 million cases – both numbers being by far the highest in the world.

“To heal, we must remember,” Biden said at the memorial. “It’s hard sometimes to remember, but that’s how we heal. It’s important to do that as a nation.”