China's trade surpluses soar to new records as Vietnam hits production ceilings

Hundreds of companies moved final product assembly to Vietnam since 2018, in response to high US tariffs imposed on Chinese-made goods. Vietnam seemed especially attractive because of its large population, low labor costs, and its proximity to China's supply chains.

But supply chain directors were nervous about two major issues. First, the most important economic driver for Vietnamese investment was the tariffs against China. What if the tariffs go away under a new administration, or are lowered through negotiations?

Second, Vietnam's growth would eventually hit an upper limit, as costs for land, labor, and other scarce resources rise. Here again, the 25% tariff rate is itself a boundary, as companies facing larger cost increases would simply buy from China instead, and thereby save money by paying the tariff.

That may be the point where companies with operations in Vietnam now find themselves. Reports from key business executives in-country, and even officials from Chambers of Commerce, indicate that Vietnam's rising costs no longer justify its consideration as a supply chain alternative to China.

This comes after news that China just recorded its largest trade surplus on record, over $99 billion for the month of June.

Resources and links:

Vietnam shapes as a key winner from the US-China trade war
https://www.lowyinstitute.org/the-int...

Vietnam exports boom as China shipments to US slump
https://www.lloydslist.com/LL1127701/...

SCMP, Is Vietnam losing its appeal for China’s manufacturers bypassing US tariffs?
https://www.scmp.com/economy/global-e...

Bloomberg, China’s Record Trade Surplus Risks Further Straining Ties
https://www.bloomberg.com/news/articl...

New York Ties, China Reaches Record Trade Surplus, Raising Alarm Abroad
https://www.nytimes.com/2024/07/12/bu...

Reuters, US hikes China tariffs, imports soar from China-reliant Vietnam
https://www.reuters.com/markets/us-hi...

Country population data from Wikipedia, Statista

Closing scene, Hong Kong