Vietnam Turns to Its Neighbors After Trump Kills Trade Deal

After years of relying on American consumers, Vietnam is turning to its Asian neighbors after U.S. President Donald Trump dashed hopes for a Pacific trade deal that stood to benefit the export-reliant nation the most.

The end of the Trans-Pacific Partnership “will push us to expand in other markets,” Nguyen Duc Kien, deputy head of the National Assembly Economic Committee, said on Wednesday in a phone interview. “We have a lot of potential to increase exports” to markets in the Association of Southeast Asian Nations, or Asean, and some “regional countries where we have bilateral trade agreements such as South Korea, Japan,” he said.

Trump this week withdrew the U.S. from the ambitious trade agreement, delivering a blow to Vietnam which was forecast to be among the biggest beneficiaries of the 12-nation pact. One of only a few countries in Asia where exports are still growing, Vietnam is boosting ties with neighbors to help protect its manufacturing industry.

“Vietnam is more active than other countries in forging trade deals and that allows it to diversify its risk,” said Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore. “You can still turn to other markets for support because there is already that trade link. There’s a lot of potential to boost intra-regional trade in Asia and enlarging the production linkages between countries.”

The U.S. is Vietnam’s largest export destination, accounting for 22 percent of its sales in 2016. Vietnam’s exports to the U.S. more than doubled in the past five years to $38.5 billion. In contrast, sales to Japan rose just 32 percent while shipments to Southeast Asian nations increased 24 percent.

Japan accounted for 8 percent of its exports, while sales to Asean comprised 10 percent. Mobile phones, shoes and garments form the bulk of its goods including brands like Calvin Klein and Michael Kors.

“We are not so concerned about TPP ending, since we still have others FTAs with different markets,” said Nguyen Van Tuan, Deputy General Secretary of the Vietnam Textile and Apparel Association. “We will look at ways to boost exports to the EU, which we still have a lot of room to grow. We also have a large domestic market which should be our priority.”

Vietnam has completed about 16 free trade agreements, of which about nine are in effect, according to ANZ’s Victorino. She expects the nation’s exports to keep outperforming this year after surging to a record $177 billion in 2016, defying a global trade slowdown.

“Investment in new production facilities will ramp up Vietnam’s capacity in 2017,” Victorino said. “The demise of TPP is unfortunate, but it won’t derail its economy.”