Is Vietnam losing its appeal for China’s manufacturers bypassing US tariffs?

Vietnam has long been a preferred destination for foreign-invested projects, but rising costs are pushing Chinese firms to consider their options

Reading Time:6 minutes

Ralph Jenningsin Hong KongandMandy Zuoin Nanjing, Jiangsu province

Published: 6:00am, 23 Jul 2024Updated: 9:10am, 26 Jul 2024

With China long established as the world’s factory, the United States has led a push to divert manufacturing and supply chains away from the world’s second-largest economy. In this three-part series, we look at whether the so-called China plus one strategy is working for the world’s manufacturers.

Chervon, a Chinese manufacturer of power tools and outdoor power equipment, launched a small factory base in Vietnam three years ago with high hopes for cutting costs.

The plant pumps out 1.5 million tools per year to avoid a 25 per cent tariff that Chervon would pay if it shipped straight from its Nanjing plant in China to the United States, executive deputy general manager Ren Jianjun said.

But the 31-year-old firm that draws about two-thirds of its business from the US is making less money from Vietnam than expected, with Ren blaming a 10 per cent rise in raw material costs and a smaller increase in operating costs.

“Overall, costs are about 7 per cent higher than in China, which basically equals the 7.5 per cent tariff previously,” he said during a Chinese government-organised media tour in June, referring to the US tariff rate before the US-China trade war, which began in July 2018 and eventually led to tariffs on some US$550 billion of Chinese goods and US$185 billion of US goods.

And Ren is not the only Chinese executive to have tried Vietnam to save production costs or as a workaround for US tariffs that went up in 2018 and 2019 as part of Washington’s trade dispute with Beijing.

If [the companies] don’t respond with their own increases, our companies’ profits will be impacted

Chieh Hao-chuan, Council of Taiwanese Chambers of Commerce in Vietnam

SCMP Series

Is ‘China plus one’ working?

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