After U.S. President Donald Trump slapped 25 percent tariffs on billions of dollars worth of Chinese imports, exporters from the Asian country have been looking for ways to circumvent the additional charges. And it seems like some of them have discovered a solution — using fake “Made in Vietnam” labels.
Faking Vietnam labels
The Vietnamese government reported that products like tiles, textiles, iron, honey, plywood, steel, and products from fisheries were being given “Made in Vietnam” labels by Chinese manufacturers. Vietnamese companies then reroute these goods to the U.S., thus helping Chinese businesses avoid paying the extra 25 percent tariff.
Industry experts feel that such activities will likely spike as the U.S.-China trade conflict remains unresolved. “A cottage industry for circumventing U.S. tariffs will likely bloom, given the high tariff rates and huge potential profit… ASEAN governments will likely crack down on such re-routing for fear of being seen as a backdoor,” Chua Hak Bin, a senior economist at Maybank Kim Eng Research, said to Bloomberg.
However, the Vietnamese government is clearly not happy with the situation. The United States is the largest export market for Vietnam. Last month, the U.S. Treasury Department added the country to its watch list for alleged currency manipulation. Under such conditions, if Vietnam is found to have become a home for Chinese manufacturers who circumvent U.S. tariffs, the country’s relationship with the U.S. would take a turn for the worse. And the government clearly does not want that to happen.
“It will sabotage Vietnamese brands and products and it will also affect consumers. We could even get tariff retribution from other countries, and if that happens, it will hurt our economy,” Pham Binh Minh, foreign minister of Vietnam, said in a statement (Business Standard). The government has instructed departments to be stricter when checking the certificates of origin of products before allowing them to be shipped to the U.S.
A recent report by Nomura Holdings, a Japanese financial holding company, says that Vietnam has been the biggest winner in the U.S.-China trade war. The country’s GDP gained 7.9 percent in the first quarter of 2019, driven greatly by increased exports to the United States. Taiwan was the second biggest beneficiary with a 2.1 percent GDP increase. Foreign investment in Vietnam surged by 86.2 percent to US$10.8 billion during the period, with Chinese businesses accounting for almost half the investments. Manufacturing centers are springing up in the country by the dozens. Unfortunately, Vietnam seems to be having a problem with supplying skilled employees in large numbers.
“Chinese manufacturers have been increasing investment in Vietnam in recent years, but there is a shortage of Chinese speakers… It is getting more difficult to recruit workers around Ho Chi Minh City. Factories even fight against each other for more workers. It’s easier to find more labour in remote areas, but workers are less professional in less developed cities,” Zhang Diansheng, general manager at Ho Chi Minh-based Hang Sinh Consultant Company, said to South China Morning Post.
The Vietnamese government is in the process of working out a free trade agreement with the EU and is implementing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with Canada, Australia, Mexico, New Zealand, Japan, and Singapore. If the administration is able to pull it off, Vietnam could soon see more foreign investment inflows and a rapid rise in exports.