Trump’s Trade War Created This Boomtown in Vietnam. Now Tariffs Could Topple It. | WSJ Center Point

In less than a decade, a manufacturing powerhouse has erupted in this city in northern Vietnam, with thousands of acres of land reclaimed from the ocean for a new economic zone, and a new deep-water port that's designed to handle exports directly to the U.S. Today, Haiphong has one of the busiest ports in the world, exporting more than $26 billion worth of products. Here's how Haiphong became the center point of Vietnam's growth, and how Trump's sweeping new trade war could stall it. Haiphong sits on the coast of northern Vietnam, home to one of the country's main ports and close to Shenzhen, the bustling Chinese tech center. And after Trump imposed tariffs in his first term, investment increased in the region, seen as a manufacturing alternative to China. We're losing with China $500 billion a year. We have to do something. Companies like LG Electronics and Pegatron, one of Apple's main suppliers, shifted some production out of China to Haiphong around 2018. And Deepsea, a company that rents land and pre-made factories, spent billions transforming secluded fishing areas into vast industrial zones, pulling in more than 170 clients, including Pegatron and Foxconn. I, at that time, had presentations where I presented Mr. Trump as one of my best salesmen ever. Because he and his tariff plan ensured that for the first time ever, foreign companies started to consider, is it worth the effort to start develop something in a country like Vietnam? This influx in foreign investment also triggered a massive expansion of infrastructure, creating more channels for goods to pass through. In 2018, a new deepwater port began operations, with direct access to the South China Sea, through which one-third of global trade passes. And in the same year, an expressway connecting Haiphong directly to Shenzhen was completed, with a drive time of around 12 hours. The result? An explosion of growth. In 2019, right before the pandemic, Haiphong's economy grew more than 17 percent, more than double the national growth rate. Today, economic growth in the city continues to surpass Vietnam's. With this manufacturing boom came a surge in trade, especially with the United States. In 2018, Vietnam had the sixth largest trade surplus with the U.S. But today? Vietnam has the third largest trade surplus. It has edged out Germany with the U.S. And they are the rogue countries through which China is sending their goods to U.S. If you just look at the stats, they speak for themselves, right? The rise of Vietnam's exports to the U.S. literally mirrors the rise of Vietnam's imports from China, and pretty much in the same categories as well. Vietnam's rising trade surplus with the U.S. has sparked accusations that Chinese companies are using it as a backdoor to dodge tariffs. The second Trump administration is way more stringent, it's way more focused, and it's way more intent on stamping on Chinese imports coming into it. I think Trump will find a reason to post tariffs on Vietnam. Analysts say the uncertainty of the timeline and scope of the expected tariffs will hurt businesses and their growth in the short term. It is really very difficult at this point of time to businesses to actually plan their expansions. If you cannot have a reasonably good idea of what future growth will look like, businesses freeze up on investments. They hold up on cash and that goes into savings. So it does not really help the growth of the world. But in the long term, the past six years have positioned the country to become the next factory of the world. Vietnam has free trade agreements with more than 25 countries, which analysts say it can leverage to redirect exports to other markets. Today, the country is one of the fastest-growing economies in the region, with a number of infrastructure projects in Haiphong still underway. Six more berths are under construction in Haiphong's deep-sea port. And a railway project worth more than $8 billion, partly funded by Beijing, will ultimately connect Haiphong to China, making trade easier between the two. It's projected to complete by 2030. What is happening now with the re-entry of Mr. Trump is that they need to become even more flexible. The most optimal supply chain is not the cheapest, but it's the most flexible, the most agile. The one that allows you to make TV screens today in China because there are no tariffs, but if tomorrow you need to decrease that volume and increase it in Mexico or in Vietnam, you can do that. That means that you have to invest more in your production apparatus, but at the same time, you have the ability to overcome more risks. These investments could help companies in Haiphong weather the coming storm, and help Vietnam's economic growth remain strong even in the face of President Trump's zero-sum outlook on trade.