Vietnam Explores Its Trade Options With the U.S.

By John Lyons, Jacob M. Schlesinger and William Mauldin Features Dow Jones Newswires

When U.S. President Donald Trump pulled out of a 12-country free-trade accord in January, it upended the plans of banker-turned-entrepreneur Rose Tran in Vietnam.

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Ms. Tran had raised $50 million to set up a suit factory in Ho Chi Minh City, betting on the increased access to markets like the U.S. that the Trans-Pacific Partnership was supposed to bring. "We were disappointed to say the least," said Ms. Tran, who is scrambling to remake her strategy and repay her debts.

Five months later, trade experts are watching a Wednesday meeting between Mr. Trump and Vietnamese Prime Minister Nguyen Xuan Phuc for hints on how the new administration will deal with countries like Vietnam, which is counting on exports from businesses like Ms. Tran's to help it build wealth and develop its economy.

Vietnam has grown more than 6% a year for a decade by providing cheap manufacturing for companies from Nike Inc. to Samsung Electronics Co. Economists estimate the scrapped TPP deal would have let the country export more, boosting Vietnam's economy by at least 8 percentage points -- more than any other TPP partner. Vietnam also saw the deal as driving domestic overhauls, and helping offset the rise of China by anchoring the U.S. to the region.

International trade experts say that Mr. Phuc hopes to start talks to replace TPP with one of the bilateral, country-to-country deals that the Trump administration says it prefers over multination accords.

"The Vietnamese want to find out more clearly where the U.S. is" on trade, says John Goyer, senior director for Southeast Asia for the U.S. Chamber of Commerce in Washington. "From Hanoi's perspective, 'What does the U.S. want in a bilateral that they didn't get in TPP? What do we have to give up?' "

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Vietnamese authorities declined to respond to questions for this story.

While Trump officials have said a bilateral trade deal with Vietnam is possible, it would likely only be considered after higher-priority items such as revising the North American Free Trade Agreement and pacts with the U.K. or Japan, according to people familiar with the process.

On Tuesday, U.S. Trade Representative Robert Lighthizer appeared to tag Vietnam as a country unfairly benefiting from trade by selling more to the U.S. than it buys. Mr. Lighthizer emphasized a $32 billion U.S. trade deficit with Vietnam while introducing Mr. Phuc at an event for businesses.

"This concerning growth in our trade deficit presents new challenges," Mr. Lighthizer said.

Some economists argue that even if the U.S. curbs imports from countries like Vietnam, it is unlikely that much manufacturing will shift back to higher-cost American factories.

And engaging with Vietnam on trade could carry security benefits for the U.S., foreign policy experts say. Both nations are skeptical about the rise of China, which has fought multiple wars with neighboring Vietnam. Vietnam's relations with the U.S. -- long chilly following the Vietnam War -- have warmed. Last year, the U.S. lifted a ban on selling lethal weapons to Vietnam.

More recently, Vietnamese diplomats urged other Southeast Asian nations to perform joint military exercises with the U.S. despite China's objections, according to diplomatic officials in the region.

"The Vietnamese, of all the Asian countries, are the most worried about Chinese influence," says Ernie Bower, president of the Bower Group, an Asia Pacific think tank.

Signing trade deals with other countries is an important part of Vietnam's strategy to limit its reliance on China, trade experts say. China is pushing a separate Regional Comprehensive Economic Partnership trade deal with the U.S., while doling out loans and infrastructure projects around the region.

Vietnam is in the final stages of a trade accord with the European Union. TPP nations are also considering a deal without the U.S., a move that would keep the accord alive and allow the U.S. to rejoin later.

Economist Pham Chi Lan, who gave birth to her only son in a Hanoi bunker under U.S. bombardment in the 1970s, has argued for more engagement with the U.S. and for a more open, market-driven economy. Ms. Lan and others want Vietnam's leaders to enact most of the reforms they agreed to under TPP, to keep Vietnam on its growth path.

That includes pushing inefficient state-owned companies to sell off noncore businesses and face more competition. "It will be hard to do without TPP, but we are committed," she said.

At her suit factory, LPTEX, Ms. Tran is figuring out a new export strategy post-TPP. To qualify for local content rules under TPP, Ms. Tran imported expensive fabric-making machines from Europe. She hired an Italian expert to manage them and found him a translator.

That anticipated advantage is gone, but Ms. Tran still hopes the equipment will help her snag contracts with higher quality customers. So far it is working, and LPTEX is producing suits for several brands in Europe.

Her new company slogan: "Producing in Vietnam with the quality of Italy and the standard of Japan."

"TPP is not coming, but we still think we will crack the U.S. on quality, " Ms. Tran says.

--Vu Trong Khanh contributed to this article.

Write to John Lyons at john.lyons@wsj.com, Jacob M. Schlesinger at jacob.schlesinger@wsj.com and William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

May 31, 2017 11:17 ET (15:17 GMT)