This Country Is Winning the Trade War

in the past year. But when it comes to countries, economic theory says no one really wins a trade war. And if you look at the way the trade battles have hurt exports in China and raised costs and uncertainty for US businesses, you'd be inclined to agree, but we might be looking in the wrong place. In a minute, I'm going to talk to Bloomberg's Asian Economy columnist Dan Moss about the impact of trade wars and tougher global

competition on Asia. But first, our Southeast Asian Economies reporter Michelle jam Riscoe has been to one country that does seem to be winning Donald Trump's trade war. This is Vietnam, where motorbikes raced through the streets of the capital Hanoi.

Forty years after the war with America, the Vietnamese have the most favorable opinion of the US out of any foreign populace, according to the Pew Research Center, and Donald Trump may just have given them another reason to like America in the form of his trade war with China.

That's because the tariff battle is giving a boost to Vietnam's economy, which was already one of the world's fastest growing thanks in part to foreign business is looking for cheaper factories my college when you in and I visited Shenwa, a furniture maker in Hanoi, to get a firsthand look at how Vietnamese business is reaping the benefits. Shenwa started as a bicycle company in and in the decades since has evolved into a big brand within Vietnam for home

office and even the seats in parliament. But it also has a solid portfolio of long time international partners like Aikia and Toyota. A family that's growing in part thanks to those tariffs. Here's CEO Laid Wei Ang. We expect new orders to increase a lot due to the trade war, but it's hard to quantify it. Right now, there are more companies getting in touch with us to switch from China to our products, but in order to turn them into real contracts, we still have a lot to do

and many things to change. It's quite difficult to compete with China in terms of quantity and cost. Here on Ang's factory floor is where that struggle to compete with China is playing out, and already with some success. You can tell Ang really wants to prioritize not just quantity but quality. He aims to compete with Japanese craftsmanship very much. In each of these buildings, you can smell the burnt

metal and creative sparks flying work. Here's still gently at each of their stations in different zones, organized as Mr Ain said in a system that they took from Ng. An average size, boyish looking man with a big smile proudly escorts us around his village of factory buildings about an hour outside downtown Hannoi. We're just the latest onlookers. In the past three months, he's been visited by about ten potential new clients who are considering moving orders from

China to Shenhwa. They've come from all over both the U s and China, as well as South Korea and Japan, and also from much further away like Romania. He's almost sure the fresh business will help him smash a growth target. For his point is driven home during our tour as a South Korean businessman walks by in a hard hat browsing products he'd like to sell to the U. S Ang pauses his tutorial about how NA has boosted productivity by shaving seconds off the process of bending the initial medal.

He points out the latest visitor strolling the floors excitedly interjecting in English, a prongfolio, and I thought to me right now, Ang seems most focused on a new Canadian client, manufacturer distributor Conglam, whose executives are scrapping their Chinese sourcing and looking instead to order from NA, including cabinets they ship to US customers. Ang says this is exactly the type of order that his business has been working toward, as they buy new machinery and become more efficient on

the factory floor. The most difficult things now is increasing quality and ensuring good quality of our products while trying to reduce costs to meet clients requirements and to be more competitive. The gains in productivity have allowed aim to raise salaries about eight percent each year for the past three years, he says, more than double the rate of inflation.

One of his workers, forty six year old Havantan, has been at China for twenty two years, and both that the recent bumping business allowed him to buy a new motorbike for his family last year. My wife is much happier since I got higher income from the company, so we have a better life now. I also have better health as the working environment here has become better than

it was previously. Ain showed off the cabinets and test phase that China was perfecting to close the deal with Conglong later, he offers up a more concrete example of where his company has already gained from the trade war. Akia has done business with Shenois for more than seventeen years. Last year, the Swedish furniture giant gave Shenwis some more business by switching from a Chinese vendor that could hike

prices due to tariffs. Achia began buying these twenty cent metal parts from Shenois, which Ain pulled off a newer machine. On our tour, I met Sebastian Eckert, the World Bank's lead Vietnam economist, in an eighth floor meeting room that overlooks an especially buzzy intersection with tourists and teens snapping photos in front of Hannoi's historic opera house across the way.

Eckert put things into perspective. Vietnam, of course, um, you know, even before the recent tensions, in many ways, has picked up activities where China basically move. We've moved on ind right, So a lot of the the FDI that VS actually is is relocation from China, and I think this the recent chansions they probably accelerate that for some instant, that's a keyword. I've been hearing a lot accelerate. The penalties targeted at China and the broader demand slow down there

have given an extra nudge in Vietnam's favor. Not only that the government is loosing its grip on commerce. At the start of Sunwa, then a state owned company was fully privatized, and now an owns a stake in the firm. Eckert sees Vietnamese agencies cleaning up regulations brainstorming on tough reforms like intellectual property rights and adding more free trade

agreements to their impressive lineup. It's all earned them better spots and international rankings like the World Banks Ease of Doing Business Index and the World Economic Forums Competitiveness Index.

That's really come back. And I think that's very healthy, and it's something that is structural, that reflects a rising middle class, increasingly urbanized country, healthy wage girls, more disposable income, not only in a small fraction of households, but very broad based, very inclusive girls, of course, and and I think that's fueling a healthy domestic economy. And I think

that's that's important. Ing himself as an example of the Vietnamese affection for America, in a country where lingering hustle sentiment from the war is largely confined to museums, a son is studying marketing in Indiana, part of a growing pattern as Vietnam ranks number seven in the world and sending students to the States. The Vietnamese hold a much

different perspective on China. They talk about a lack of trust etched in a thousand years of history with their communist neighbor, and almost nine and ten have an unfavorable view of China, according to the same Pew survey. But for all the positive signs, businesses aren't getting too excited about the opportunities that might flow from the trade war. For one thing, companies know they can't cut out the

second biggest market in the world. In fact, Ang says Shea still needs to source some materials, including steel, from China in order to continue producing according to customer preferences. Corruption also remains an issue. Infrastructure still lags in some ways, and paperwork can bog down newcomers. Moreover, Vietnam is vulnerable to international criticism for imprisoning dissidents and bloggers who challenge

the government's one party socialist rule. And of course, if the US China trade war worsens or goes global, that's going to be bad for everyone, especially trade heavy economies like Vietnam. But A thinks Shena in his country will rise to the challenge. We see many opportunities in both domestic and international market. The trade war is bringing more business, for sure, while there are some potential areas in the

domestic market that we haven't tapped yet. In talks about creating a so called smart fact Jory with more robots and advanced machines. He aims to double sales in the next five years. For now, the trade war is helping and keep things plans on truck for Bloomberg News. This is Michelle jam Risco. So that was Michelle jam Risco. I'm very pleased to talk now to Daniel Moss, who will be familiar to some of you long time listeners to the Benchmark podcast. He used to run the economics

coverage here at Bloomberg. He has done a lot of other things for Bloomberg, but most importantly for our purposes. For the last few months, he's been based in Asia as the Asian Economy columnist for Bloomberg Opinion. Dan, thanks very much for coming back on the podcast. Step great to be here. So we were just hearing about this quite positive story about Vietnam potentially at least in the

short term, being a winner from the trade wars. Is this something that you see generally when you think about the impact on Southeast Asia of the immediate sort of US China wrangling over trade, that there are some countries that are actually benefiting as well as the losses we see, or is it primarily a negative story. When you think about the impact of the trade wars on the region, it is overall a broadly negative story, with a couple of exceptions, and Vietnam is one of them, certainly in

the short term. I was in Vietnam late last year and the place was getting quite a lot of positive buzz from foreign businesses who had set up there. Late last year, the government lifted restrictions on how much foreigners can own of huge swaths of industry. However, and this is the key caveat when you're talking about Vietnam, it remains a one party communist state, and so called sent citive areas they are still off limits to foreign control. Vietnam is a big country, but it's not so big.

It has relatively warm relations with the US and with Western Europe that, of course, can all go wrong, though its system of government is not dramatically different from China's and steph. As you know from your own working experiences. When emerging markets let foreign investors have more and more of a say in the economic life of their country, governments also surrender a certain amount of control. Some systems of government and individual states are more comfortable with that

than others. For now, it's probably a bargain that works for Vietnam. How long it works remains to be seen. I suspect there's a little bit of crush to this. Whether it's a long term player remains to be seeing.

I mean, it's one thing that certainly we think about when we look at what you might call the Asian economic model, which was so focused on trade and exporting to the rest of the world, we know that that sort of the path that China took and that other countries before it took, is going to be much harder now looking ahead. I mean, the rest of the world's a bit more wise to that approach, but it's just

a much more competitive environment. I mean, not just Vietnam, but if you're sort of stepping back and thinking about Southeast Asia as a whole and that Asian export economies, you know, how well do you think countries are grappling with moving away from it or needing to find a different kind of economic model. They do need to find a different type of economic models. Some of them are

pinning hopes on their own middle class. But just to be clear about this, a move away from exports is essentially a move away from the model that got them where they are. You know, we're all familiar with the success stories of some of these Asian economies. You know, tigers was a term very much on vogue in the eighties and nineties. Who don't hear that so much anymore.

They did really, really well out of exports, and part of that was an exports supply chain that sneaked through China and has recently served China as well as serving the US. Now, to attract all the multinationals that were part of those supply chains, they needed to make their economies more open. They needed to invest more money in education, They needed to keep up the momentum move up the

value chain. Now, if you take away exports and if you at least subtract from China's role in that global supply chain, the model that got many of these East Asian countries where they are, well, you know, got another model. I don't know that they necessarily have a convinced seeing new one, and I guess one of them, I mean, one part of one big part of the model. The last few years has just been dependents on China, I mean, selling,

selling into that China growth story. We think a lot about the impact of trade wars and as understandable because it's such a it's a change to have this kind of protectionist mood affecting relations between the two of the biggest economies in the world. But if you're sitting in major you're looking at Asian economies all around you, what are you worried about most? Are you worried most about the trade war? Or are you worried most about the slowing of growth in China because that's such a big

part of this year's story as well. Yeah, when I wake up tomorrow morning, I'll be worrying about the trade war and the impact of that. But you know, as I wake up in the months and perhaps the year to come, I'll be worried that economies aren't thinking enough about the structural slowed down and the structural change in the Chinese economy. This is an economy that Donald Trump, notwithstanding, is becoming more and more driven by its own domestic

consumer market, by technology. China is not going to grow at six percent forever. It didn't grow at ten percent forever. You know, we need to get used to growth of five points something, four points something, three points something. You know, the O E c D has done some modeling. Capital Economics, among other firms, have done some modeling. As China's economy continues to mature, you know it's going to look actually a lot like the US and to a degree Western

Europe in terms of its rates of growth. Now, for all the people's staff that we've heard say, well, the biggest thing in my lifetime has been the super fabulous rise of China. That's great, that's true. But how much consideration is given to a China, know which looks normal? That is the really long term fundamental challenge. Being close to China was once an an unalloyed good. How much longer will that be true? Again? Got a new model.

It makes me think. And it's interesting because you and I both have a sort of longer term perspect on this, although you had a much deeper understanding of the region. I mean, I think, you know, you've just moved back to Asia after many years away, and I think the last time you were there. You should remind us the last time you were there was in the late nineties. That was when I was making flying visits to Asia during the Asia Financial crisis, when I was working at

the U. S. Treasury, working for Larry Summers. So, of course I got a rather crazed picture of these countries when they were going through this absolute worst moment of crisis. You were sitting there able to look at it a bit more calmly. But what struck you most you've been back for a few months now, how is that long term story of China influen punts and the development of the region played out relative to what you might have thought when you left? So I moved to Singapore three

months ago. The last time I lived in Southeast Asia, I was the bureau chief of Bloomberg in Malaysia from so definitely that was a period of economic and political upheaval in the region. Having been away for two decades, I expected Steph that when I returned, China's footprint would be everywhere. You know, writ large, writ small, rip medium,

you name it. The thing that surprised me most as I talk to people at central banks here and read more and more about monetary policy in Asia, the more it's apparent to me this is still largely about the Federal Reserve. This is still a dollar zone. Is China's footprint in the region expanding in other economic ways? For Shure is China funding a lot of infrastructure in this region for Shure, is the Belton Road Initiative having an impact for Shure. But when it comes to the monetary realm,

this is still a dollar game. And whenever there's a Federal Open Market Committee meeting for two days, there's just this constant blitz. It's like I was back in d C at a fed lock up. People's Bank of China is barely mentioned. For me. That was a surprise. Now culturally and politically things have advanced significantly. I'm talking to you right now from Jakarta, the capital of Indonesia, which, as you know, was the epicenter in Southeast Asia of

the financial crisis two decades ago. It ultimately became a political crisis and in some ways a sectarian crisis. Indonesia is in full bloom as a democracy as it prepares to vote this month. Country only been voting directly for presidents since two thousand and four. And democracy is a great thing. We all support that, but it does make it harder sometimes to get a handle on the debate, and it can also uncork some sentiments that authoritarian rules

had papered over. No I think that's I mean It's fascinating and not necessarily what we hear all the time when we think about the rise of China and and how how dominant it's become. Some things have moved very quickly, but some of these long term aspects, certainly about the role of the dollar, we know it could take a lot longer. I seem to remember. I think the the UK was surpassed by the US in terms of the size of its economy in the late in the eighties nineties.

It took another sixty years before the pound was really displaced by the dollar as the global currency. So maybe we shouldn't be surprised, but it's it's interesting to hear that you've come all that way, Dan, moving from the US, only to discover that it really is still all about at the FED. I appreciate that we got that insight. Thanks very much for joining us. I know we're going to have you back on the show very soon. Thanks Steph.

Looking forward to it. So I'm joined now by someone who's also about to move from the US, Brendan Murray, who until recently was managing editor for the US economic coverage here at Bloomberg, but is now Our world trades are we've decided trade it become so important to Bloomberg we didn't just have to report it, but we needed to install an autocrat to keep the show on the road. So, Brendan, welcome.

I wanted to chat to you partly to tell everyone that we have a global trades are now, but also because a news story out of Geneva caught my eye, which I don't say very often. It's the news that the World Trade Organization, based in Geneva has just published its first ruling on national security. Now, Brendan, this was about a trade dispute between Russia and Ukraine, which might be quite important for those two countries, but it's not necessarily going to be something the world has to pay

attention to. Why did we make a bit of a fuss out of it here in Bloomberg. Well, this ruling is going to have bigger implications for the Trump administration's trade agenda around the world. Essentially, Trump is saying that the steel and aluminum tariffs that it is applying on a number of countries around the world are justified for national security reasons, so that this ruling out of the w t O will invite some disputes from from around the world, from countries like Canada, China, and EU. So

he's always said so. The administration has always said w T shouldn't be getting itself involved in this, and in fact, even the w D has sort of said in the past they didn't particularly want to get involved in national security things. But if you look at the ruling itself, the w two seems to have said, yeah, Russia's claim of national security concerns was right in this case. I

think they were. They were They've been putting restrictions on the goods going from Ukraine to other countries but through Russia, and because of the sort of conditions relations between Russia and Ukraine. Russia had said there's national security concerns, why I was doing this, And the w t O has agreed with that. So so why should the administration really

worry about it? If it's going to be on on the Donald Trump's side, well, they should worry about it because they're probably on shakier ground calling the steel and aluminum tariffs justified for national security reasons. In the Russia and Ukraine case, there was an armed conflict going on when Russia installed these these restricted trade measures. The US UH doesn't have the same argument that there's an actual military conflict going on, that we need these tariffs for

national security reasons. So the definition of of of trying to prove that these are needed for national security that the administration is probably hoping if there's a looser a looser definition of basically this could open up the floodgates to for other countries to say, oh, well, we have we have national security interests in in in maintaining our steel industries. And so you can you can see the sort of domino effect that that this could have. What

about what's the timing on that? Do we think if I know that sometimes things take an awful long time to go through the w t O, but are we expecting a ruling on any of these things? Nothing? Nothing in the near term. That's that That's one of the potential outcomes of this particular case is that this could be appealed and and it could be tied up for years. Um, you know, that's probably what Donald Trump would be would be hoping happens if it does actually come to the

ruling for national security against the US. Now, I feel kind of sorry for the World Weld Trade Organization. They're sort of damned if they do, and damned if they don't. If they don't get involved in these kind of issues, then you can imagine, as you say, more and more countries going around them and saying everything is a national security concern, and then the w t A becomes relevant. But if it's relevant and then hated enough for President Trump to take the US out, that's a pretty bad

outcome as well. Who knew that world trade negotiations could be so exciting. You must be very excited to take on your new role. Congratulations Brendan, and thank you. Thanks thanks for listening to Stephanomics. Please join us next week for another episode about the forces shaping the global economy. In the meantime, you can find us on the Bloomberg Terminal website or app or wherever you get your podcasts.

We'd love it if you took the time to rate and review the show so it could reach more listeners. For more news and analysis from Bloomberg Economics, follow as Economics on Twitter. You can also follow me on at my Stephanomics. The story in this episode was reported and written by Michelle jam Risco, and Win You Win was

produced by Magnus Hendrickson. And edited by Nurserene Syria and Scott Lamman, who is also the executive producer of Stephanomics Special Thanks to Dan Moss, Brendan Murray and Hung Trom. Francesca Levy is the head of bloom By podcast