No ‘clear evidence’ of Vietnam’s role as trade vehicle for Chinese exports to US: IMF

The International Monetary Fund has said it found no clear evidence of Vietnam’s role as a one-stop trade vehicle in facilitating Chinese exports to the U.S., amid the idea of Vietnam benefiting from trade tensions between the world’s two largest economies.

To test whether Vietnam has been used as a one-stop trade vehicle, i.e., imports from China are repackaged and exported to the U.S. without additional domestic value added, the IMF looked at the backward trade linkage with China in Vietnam’s exports to the U.S., i.e., how much China-originated value added is embedded in Vietnam’s exports to the U.S.

If there was a faster-growing share of China-originated value added in Vietnam’s exports to the U.S. compared to its peers, it would indicate some evidence of a trade vehicle role, said the fund in the conclusions on its 2024 Article IV consultation.

Vietnam’s backward trade integration with China preceded 2018. The share of China-originated value added in Vietnam’s total exports to the U.S. has increased at a faster pace than its ASEAN and OECD emerging market peers since 2000.

However, this backward linkage decelerated during 2018-2022, growing slower than its peers, suggesting no clear evidence of Vietnam serving as a trade vehicle. Vietnam has also taken measures to avoid being used to reroute Chinese goods to the U.S. to circumvent trade barriers, the IMF affirmed.

Notably, ASEAN emerging markets except Vietnam saw their backward linkage with China growing faster since 2021.

At the sectoral level, there is limited evidence of trade rerouting through Vietnam in certain strategic sectors, albeit not broad-based. For example, Vietnam saw an accelerated growth of backward linkages with China in petroleum, chemical, and nonmetallic mineral products since 2021 while, instead, a slower growth than ASEAN peers in electrical and machinery products.

If Vietnam served as a vehicle country for Chinese exporters to circumvent U.S. tariffs, one would expect similar rising trends in Chinese exports to Vietnam and U.S. imports from Vietnam specifically in strategic sectors affected by tariffs. But sectoral trade flows do not reveal clear evidence of a one-way street.

The fund elaborated that U.S. sourcing of strategic inputs from Vietnam accelerated during 2018-2022 and has stabilized since. The pace of this increase matched the rise in its overall market share in U.S. imports.

But Vietnam’s market share in these strategic sectors has not yet climbed above its overall market share in U.S. imports despite U.S. tariffs on China’s strategic sectors.

Looking at China, the share of Chinese exports to Vietnam in strategic sectors has stabilized since 2020. At the same time, China has increasingly imported strategic goods from Vietnam; its sourcing from Vietnam rose almost threefold from 2% in 2017 to 6% in 2023.

Combining these trends suggests that strategic exports from China to Vietnam cannot merely be attributed to rerouting trade to the U.S, the IMF analysis found.

Instead, China may have been increasingly exporting to Vietnam in strategic sectors as part of Vietnam’s increasing integration into the Chinese supply chain (e.g., China moves production to Vietnam, possibly due to lower labor costs, and imports back for further processing or final demand).

In conclusion, the IMF analysis found that in terms of aggregate and sectoral trade flows, China’s export share to Vietnam and the U.S. import share from Vietnam have increased in lockstep, and so has China’s import share from Vietnam. These trends span also strategic sectors, but only accelerated during 2018-2022, and have ebbed since.

Regarding content of Vietnamese exports, domestic value added in Vietnam’s exports to the U.S. has increased, especially in strategic sectors, while China-originated value added has remained flat in all but some strategic sectors since 2017.