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Quach Ngoc Thien should be basking in good times. His fabric-dyeing company is woven tightly into the global garment supply chain. Located in bustling Ho Chi Minh City, Hong Le Trading Co. is emblematic of the promise of a rising Vietnam, which enjoys one of the world’s fastest-growing economies. And now it’s expanding, creating a unit to produce fabric to be turned into T-shirts and dresses for Walmart, Nordstrom, and other U.S. retailers.
Yet Thien sleeps fitfully. Every morning he reaches for his iPhone to scan news from faraway capitals that could put his livelihood and that of his 80 workers in jeopardy. That’s because Vietnam again finds its destiny shaped by the clash of great powers. The country, the bloodiest battlefield of the Cold War five decades ago, is at the nexus of the latest superpower confrontation — the economic rivalry between the U.S. and China.
To keep its export-powered growth story going, Vietnam needs unfettered access to the market of its former enemy, America, whose shoppers snap up Nike shoes made in the country’s south and tap away on Samsung smartphones assembled in giant plants just north of Hanoi. Equally crucial are imports — from yarn for making shirts and pants to chemicals and machines for assembly lines — from its fellow communist state and ostensible friend, China.
Early on in the U.S.-China trade war, Vietnam was shaping up as one of the world’s few winners. Investments flowed in and products shipped out of its busy ports in ever-increasing numbers. This bounty had unforeseen consequences, though: A growing trade surplus with the U.S. exposed Vietnam to the sort of tariffs the Trump administration had imposed on China. The duplicitous flow of Chinese products such as aluminum and plywood, rerouted south across the border and falsely labeled “Made in Vietnam” to avoid U.S. duties, is further straining Hanoi’s relations with Washington.
On the other side of the great-power divide, relations with China range from unpredictable to turbulent. Vietnam fought a border war with its northern neighbor a few years after the last U.S. Marines were choppered out of Saigon. Today, an incessant battle of words with China rages over increasing territorial tensions in the South China Sea, putting Vietnam at peril of the kind of economic retaliation that’s afflicted other countries in the region in recent years. Beijing, for example, slapped economic sanctions on South Korea after that country, along with the U.S., decided in 2016 to deploy the Terminal High Altitude Area Defense system as protection against any missiles fired by North Korea. A similar move by China against Vietnam could slow or even freeze the flow of Chinese exports crucial to manufacturers such as Hong Le Trading.
“I feel like we’re squeezed between two giants,” says Thien, the company’s co-founder. “We’re stuck between China and America. We haven’t done anything to hurt anyone, but we still might get hurt. We are so small and caught in the middle of the fight.”
Vietnam’s ability to dance between opposing forces has lifted the country from postwar poverty to global economic success. Factory openings by Intel Corp., LG Electronics Inc., and other multinationals have made the country a vital manufacturing hub, helping to create a surging middle class. Vietnam’s economy has expanded at an average yearly pace of 6.6% since 2000, boosting the average annual income to almost $2,600 from about $400. Last year it grew 7.02%, its second-fastest rate since 2007, while China’s economy grew at 6.1%, an almost three-decade low.
Vietnam is still new to the global economy. It didn’t begin opening up to foreign investors until the late 1980s, when it instituted the doi moi (“renovation”) reforms ordered by the politburo, which steered the communist country toward a market-oriented economy. Hanoi is making up for lost time by aggressively courting multinationals and signing any trade deal it can, including one in June with the European Union.
Its leaders have ambitious goals. One is to build an industrialized economy by 2035, yielding a per-capita gross domestic product of $22,200, or about 10 times what it is today. As ambitious as the target is, it may be achievable if Vietnam can pull off its great-power balancing act. Its debts are manageable at 61% of GDP in 2018 (and expected to fall further by the end of 2019), the government is making key infrastructure investments, and the country has a youthful workforce, with more than half its 96 million citizens under 35.
Unlike other big developing Asian nations such as Indonesia or India, which depend more on domestic demand to fuel their growth, Vietnam is particularly vulnerable to geopolitical risks because of its reliance on trade. The nation’s exports are equivalent to more than 100% of GDP, according to World Bank data, making it one of the most trade-dependent nations in the world.
But that could all change if it gets dragged into the trade war or becomes embroiled in hostilities with China. Once a developing economy starts losing ground, it’s difficult to recover, says Scott Rozelle, a Stanford development economist. “Any sudden and sustained drop in its growth,” he says, “could stall its climb.”
On what was once the U.S. Army base of Long Binh Post, about 20 kilometers (12.4 miles) northeast of Ho Chi Minh City, sits the Bien Hoa II Industrial Park. It houses 250 or so foreign companies, including U.S. and Chinese operations, that together employ about 80,000 workers. Many of them — such as U.S.-based Cargill, Fujitsu of Japan, and South Korea’s Taekwang Industrial, which makes shoes for Nike Inc. — are based in countries that at one time or another were at war with Vietnam.
“Vietnam can’t afford to hold a grudge,” says Do Doan Kim, 48, deputy chief administrator of industrial parks under the People’s Committee of Dong Nai Province. Outgoing and optimistic, he grew up near the old Army base and remembers the bitter aftermath of what was known in Vietnam as the Resistance War Against America. “We are a small economy, so we have to be practical,” he says. “These companies are helping to improve the lives of Vietnamese.”
This slender, S-shaped nation has long attracted the attention of foreign powers jockeying for regional influence. Its coastline of about 3,400 kilometers faces one of the world’s busiest sea cargo lanes, and it shares a 1,281-kilometer land border with China. The country is Vietnam’s biggest trading partner, with bilateral merchandise trade of $129.6 billion in 2018, according to the International Monetary Fund. As manufacturing has grown, so have imports from China, soaring 50% from 2014 to 2019. The U.S. is Vietnam’s largest single merchandise export market, with sales of $49 billion in the nine months through November.
Despite the rough patches in their relationship, China, which supported Vietnam during its war with the U.S. five decades ago, courts Hanoi to make sure it remains within Beijing’s orbit of influence and promotes trade and investment in Vietnam. Communist Party leaders from the two countries regularly hold talks.
The U.S., for its part, sends warships to visit the Southeast Asian country to take part in joint activities with the Vietnam People’s Navy — in 2018 the aircraft carrier USS Carl Vinson called at Danang. In November, U.S. Secretary of Defense Mark Esper announced the U.S. will provide Vietnam with a second Coast Guard cutter. Other American military and diplomatic officials regularly travel to Hanoi. In 2016, President Obama lifted a ban on the sale of U.S. lethal weapons to Vietnam. Washington continues to aid in the cleanup of unexploded ordnance and dioxin, used as a defoliant during the war.
Hanoi, meanwhile, strives for neutrality. “We do not want to choose sides,” says Pham Quang Vinh, a former Vietnamese ambassador to the U.S. He helped orchestrate Vietnamese President and Communist Party General Secretary Nguyen Phu Trong’s first-of-its-kind Washington meeting with Obama in 2015 as well as Prime Minister Nguyen Xuan Phuc’s 2017 visit to the Trump White House. “Our best defense is to have good relations with both big powers,” Vinh says.
To stay on an even keel, when senior Vietnamese officials visit Washington, they almost always pay a visit to Beijing, too. But Hanoi doesn’t want to be seen as kowtowing to China, either. Viettel Group, Vietnam’s largest mobile carrier, which is owned by the Ministry of Defense, chose not to deploy Huawei Technologies Co.’s 5G network technology, echoing the U.S. government’s security concerns about the Chinese company. The decision drew a warning from China’s Communist Party newspaper that it could “be seen as a signal that Vietnam is choosing sides.”
Hanoi is a deft operator in this regard, says Raymond Burghardt, U.S. ambassador to Vietnam from 2001 to 2004. “Vietnam knows how to maintain its independence but also not to be gratuitously provocative,” says Burghardt, who still visits the country. “It’s in the Vietnamese DNA.”
In the mountainous northern province of Lang Son, a castle-like hotel on the Chinese side of the frontier looms over Vietnam’s smaller Tan Thanh border gate. In late October, three months before the Vietnamese government imposed travel restrictions as a preventative measure against the spread of coronavirus, Hoang Van Hoan watches big rigs loaded with crates of produce lumber past from his shop a block away. The 52-year-old says his sales of drinks, snacks, and cigarettes fell by half over the past year, a decline he attributes to the trade war’s impact on China’s economy and his customers. He says the parade of trucks passing his store slowed from about 400 a day to 100.
When Hoan was 12, he was caught up in the Sino-Vietnamese War, triggered in 1979 when Chinese troops crossed the border to retaliate against Vietnam’s occupation of Cambodia. He fled with his family to a cave as Chinese troops came across the border “like a herd of ducks,” he recalls.
Territorial tensions are escalating again. Over four months or so in mid-2019, Vietnam repeatedly accused a Chinese oil survey vessel and its coast guard escorts of territorial violations off its coast. In mid-2014, China positioned an exploration oil rig off Vietnam, triggering violent anti-China protests. “They call us comrades, but they’ve been trying to grab every piece of our land, every stone in our sea,” says Hoan, who once patrolled the border with an AK-47 as a militiaman and still sports a military crew cut.
“We fought the Chinese. We thought they were friends,” he says. He speaks in Vietnamese as a Chinese customer pulls up a green plastic chair next to him and orders a Red Bull. “The Americans came and fought against us, too. Now we get hurt when the two big economies fight each other. It’s like a fight between a buffalo and a bull, and we are as small as a mosquito that may be crushed.”
In Binh Thuan Province, 212 kilometers northeast of Ho Chi Minh City, Thai Son S.P. Co. Ltd. decided to build a factory when Obama signed a 12-nation Pacific trade pact in 2016 that would further open the U.S. market to Vietnamese companies. Dubbed “Obama Factory,” it was meant to churn out clothes for companies such as Calvin Klein Inc. “On the day Obama signed the document for the Trans-Pacific Partnership, we all jumped up with joy,” says vice director Sim Thai Ha Phuong. Anticipating prosperous times, the company bought an extra plot of land for later expansion.
Then, Chinese competitors flooded across the border to set up factories, too. Investment from China and Hong Kong surged, from $3.4 billion in 2014 to $11.9 billion in 2019, on hopes of taking advantage of the proposed agreement. “Salaries tracked up 10%, and staff jumped like grasshoppers to other companies,” Sim says.
Donald Trump, in one of his first acts as president, said the U.S. wouldn’t join the Pacific pact. Now the trade war has attracted even more Chinese companies to Vietnam seeking to skirt tariffs, putting the country at risk of new duties on its exports to the U.S. even as it sits on a U.S. watchlist for currency manipulation. With characteristic exuberance, Trump in June described Vietnam as “almost the single-worst abuser of everybody” when asked if he wanted to impose tariffs on the nation.
“Vietnam suffers, of course,” says Sim, who has CNN and Fox News apps on her smartphone to keep on top of news from abroad. Ensconced in her company’s headquarters, not far from the building that was U.S. General William Westmoreland’s base of operations during the Vietnam War, she worries about the trade tensions that are slowing the global economy and reducing orders from her U.S. customers. “My team is still a happy team,” she says, as her mostly female workforce creates clothing patterns for the Obama Factory assembly line. “They don’t worry, because they don’t see what is happening outside Vietnam. They don’t see the outside storm.”
It’s more like twin typhoons are bearing down on Vietnam from China and the U.S. As with Sim’s company, the fortunes of Hong Le Trading are inescapably exposed to these two opposing forces. At its new fabric unit, yarn is imported from China and spooled into Chinese-made cotton-spinning machines to produce bolts of cream-colored fabric. The bundles of cloth are then trucked to Hong Le’s dye unit, Hao Hanh Trading Co., in another part of Ho Chi Minh City. That operation uses Chinese dye chemicals to treat the fabric before it’s sent to factories throughout Vietnam to be cut into shirts and dresses destined for clothing racks in the U.S.
“There is a lot of pressure, a lot of stress,” says Nguyen Thi Tuyet Hoa, director of Hong Le’s fabric-spinning unit, as her workers hoist boxes of yarn from a delivery truck and onto their shoulders. “I have to worry not just about the daily operations in the factory — the quality of the fabric — but also the trade war. We depend on the Chinese for material and machines. We need the U.S. as our biggest export market. Both can just move a finger and cause Vietnam great harm.”
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