Essay on Vietnam the New World Factory

The US-China trade war has taken a different direction as there seems to be no agreement anytime soon. The ban on some Chinese products in the international market has elicited mixed reactions in the global economy. The Chinese economy has leapfrogged from a low-income to middle-class state, given its vibrancy in the manufacturing and processing activities for decades. The immediate beneficiary to the US-China trade war is the Vietnamese economy, which is tipped to replace China’s role in the global economy (Mao & Görg, 2019). The aim of the paper is to establish a factual argument as to whether Vietnam as a nation can take-over manufacturing activities from China to become the new world factory.

First, the Chinese market is shifting from manufacturing industries to an economy based on service provision (Wang & Li, 2017). As a result of the economic transformation that is going on in China, the Vietnamese economy is the most appropriate market, which can accommodate low-cost manufacturing. The trade war between China and the US is speeding up the transition, which is benefiting neighboring economies, especially Vietnam. Change of the manufacturing base to a high-tech reliance production has financial implications on the economy. The rising costs of manufacturing in China are a contributing factor to the increasing shift of manufacturing industries from China to other economies (Huang, Lin, Liu & Tang, 2018). As such, the Vietnamese Market is likely to become the new world factory.

The Vietnamese strategic position and sound economic fundamentals in Asia give it a competitive advantage over the rest of the countries in the region. In comparison to countries such as Indonesia and the Philippines, Vietnam proves to be an appropriate option to replace China’s manufacturing activities. Its strong GDP growth and stable inflation tendencies are some of the reasons why it will become the world’s new factory. For instance, Vietnam has registered an average increase of 6.79% on its GDP in the first quarter of the year. The growth is indicative of the strong economic background that the country will enjoy given its concentration on manufacturing as the new world factory.

On the other hand, Vietnam, as a nation has its limitations that might be a hindrance to its road to success as the new world factory. Despite its ability to attract foreigners to invest in the country, Vietnam lacks comprehensive and complete industrial and supply chains as compared to its counterpart China (Sturgeon & Zylberberg, 2016). As the world factory for decades, China established numerous supply chains that are crucial in the global market. Vietnam is still far away from achieving such a status in the worldwide market, which poses as an obstacle towards replacing China’s role. As such, many are questioning the competence and ability of Vietnam as a country in taking over from China.

To sum it up, Vietnam is in a position to become the world’s new factory, given the current global market situation. The trade war between China and Vietnam is a major contributing factor in the establishment of Vietnam as a manufacturing base. Equally, the rising costs of production in China and its transition to service-related industries have promoted Vietnam’s efforts to become a world factory. The country’s strategic position and economic progress prove that they can become a giant in manufacturing activities across the world. However, the country’s incomplete and incomprehensive industrial and supply chains are challenging its efforts to become the new world factory.

References

Huang, Y., Lin, C., Liu, S., & Tang, H. (2018). Trade Linkages and Firm Value: Evidence from the 2018 US-China’Trade War’.

Mao, H., & Görg, H. (2019). Friends like this: The impact of the US-China trade war on global value chains (No. 17). Kiel Centre for Globalization (KCG).

Sturgeon, T., & Zylberberg, E. (2016). The global information and communications technology industry: where Vietnam fits in global value chains. The World Bank.

Wang, B., & Li, X. (2017). From world factory to world investor: the new way of China integrating into the world. China Economic Journal, 10(2), 175-193.