Rising tension between Japan and Korea to affect Vietnamese exports

While the US-China trade war steps into a more serious phase, the tension between Japan and Korea has risen to high levels. Vietnam is expected to be impacted significantly if tensions continue, seeing its heavy dependence on Samsung exports.

Illustrative photo.

Illustrative photo.

The tension has been rising to serious levels after the Korean court required a Japanese company to compensate for forced labor used during the Second World War. Although the leaders of the two countries have met many times, this acrimonious dispute has remained unresolved and shows no sign of either country stepping back.

Japan will strictly supervise the exports to Korea of materials used for manufacturing semiconductors and computer screens. The business operations of Samsung and SK Kynix are expected to be significantly impacted for a long period. The time for processing the export procedure will increase to 90 days while the inventory time for Samsung and SK Kynix is 30 days and 90 days, respectively.

The manufacturing operations and exports of Vietnam are expected to be influenced badly as well. The products which are related to semiconductors or computer screens, mobile phones and cameras currently constitute about 35% of total exports of Vietnam, in which, mobile phones comprise 20%. When the exports of these products are badly impacted, the total trade balance of Vietnam will also be influenced negatively.

Besides huge contribution to exports and trade balance, mobile phones and electronic products also contribute much to the growth of heavy industry which has been the economic driving force of Vietnam recently. For example, Samsung has created over 160,000 jobs for labor in Vietnam. According to Samsung, the company is finding a replaceable source and will not scale down its business activities.

Practically speaking, Russia and China are able to supply these materials and components too, but their effectiveness is lower.

Generally, the operations of Samsung Vietnam will not be impacted in August and September given the inventory which was built up from successful exports by Japanese company to Korea in July. Samsung has just launched its Galaxy Note 10; hence, the company will be busier in next couple of months.

However, if Japan continues to tighten its exports to Korea, the operations of Samsung will be impacted. The Samsung plants in Vietnam will be short of materials to produce chips, while the replaceable materials from China or Taiwan may not qualify in quality standards.

In 2018, total products of Samsung constituted about 25% of Vietnamese exports, equivalent to approximately USD 60bn. Hence, any delay in operations and exports of Samsung products will impact export, trade balance and economic growth of Vietnam. Note that the profit of Samsung Vietnam fell significantly in Q1/2019.

According to Customs Office, Vietnam’s total trade reached USD 290bn in the first seven months of 2019, an increase of 8.6% YoY. Exports and imports were USD 145.48bn and USD 143.78bn, respectively.

The trade balance is currently USD 1.7bn in surplus, in which, the trade surplus of FDI sector was USD 16.89bn. There are 26 items which posted exports of above USD 1bn, including USD 27.39bn of mobile phones, USD 18.56bn of computer and electronic devices, and USD 18.4bn of textiles and garments.

Thao Nguyen

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