Vietnam’s shoes market could be in turmoil if the US imposes a 25% tax on shoes from China because of the trade war.
It is likely that the US will raise taxes to 25% on $ 300 billion of goods from China immediately after the hearing on June 17. Mr. Diep Thanh Kiet, Vice Chairman of the Vietnam Leather and Footwear Association (Lefaso), worries: “Chinese footwear products will flow into other countries, including Vietnam.”
Two sides of the teleport
Lefaso confirmed that the footwear product is on the list of US $ 300 billion of goods from China imposed by the US, despite the fact that the country imports more than 95% of domestic demand for shoes. China exports to the US about US $ 15 billion per year with two high-end and affordable products. The US’s first attempt to impose tariffs on shoes from China could lead to a drop in shoe production from China to the United States.
“No country has fully absorbed the volume of Chinese shoes exported to the US,” said Vice President Lefaso. According to him, the number of Chinese shoes exported to the US is very large, other shoe-making countries cannot be replaced on day one or day two. Even Vietnam, the second largest exporter of shoes to the US market, is unable to absorb all of the output from China. With the current production capacity, Vietnam can only meet the production level of 10-20%.
Vice President Lefaso said that nearly 200 shoe importers submitted petitions to US President Donald Trump. He even believes that the US Government is rethinking the imposition of taxes. Because of the high US tariffs, one block of Chinese goods to the US on the other hand, but on the other hand, American consumers are having to buy goods at a higher price.
The US plans to impose tariffs on shoes, Mr. Kiet said that is “two sides of a problem”. On the good side, Vietnam has conditions to choose to produce high-value product lines. This is different from before, the contracts that Vietnamese enterprises do not, importers will bring to China to produce. But the negative side is also great when international and Chinese shoe brands choose Vietnam to shift production, the domestic market is definitely disturbed due to insufficient supply for production. In particular, the situation of labor competition will be fierce, labor prices are pushed to a higher level, causing disadvantages for domestic enterprises in the context of the cost of shoe production in Vietnam is gradually higher than other countries. .
New technology FDI perspective
Vietnam is developing a new FDI attraction strategy, with the expectation of attracting high technology and higher governance capacity. However, before the wave of shifting production from China, the Foreign Investment Agency, under the Ministry of Planning and Investment, was forced to raise an alarm about the possibility that the domestic production industry was subject to negative impacts. , when in the first 5 months of 2019 alone, mainland China, Hong Kong and Taiwan invested US $ 7.6 billion in Vietnam. Meanwhile, the total investment from China to Vietnam in 2018 was only 2.46 billion USD.
“Domestic shoe businesses are on the verge of losing labor, FDI shoe companies are focusing on this shift because they want to expand factories and upgrade equipment,” said Kiet. Up to now, leather and footwear export is almost in the hands of FDI enterprises, about 800 FDI enterprises, accounting for less than 25% of the number of footwear enterprises but deciding to 77% of export value.
In the US market, China’s footwear market share is four times larger than Vietnam because Vietnam exports to the US at around US $ 4 billion. This clearly shows that the production shift arising from the US-China trade war and the high tariffs and there is no guarantee that shoe manufacturers, especially Chinese ones, will invest in new technologies or technologies enter Vietnam.
In addition to China not easily letting Vietnam increase its market share of shoes in the US market, the major shoe producing countries in the world such as Cambodia, Myanmar, and Bangladesh will be Vietnam’s direct competitors in the market. this. “The country’s shoe manufacturers are likely to launch high-tech product lines to bring higher profits in the US market,” Kiet said.
Currently, ordinary product lines are making low profits, if the US imposes a higher tax rate and Chinese manufacturers certainly cannot afford the cost. But with the high-end product line, profits do not come from labor, but from creativity. In this regard, Chinese manufacturers are doing better than Vietnam. According to Kiet, this is the result of many years, Chinese shoe manufacturers on the one hand bought technology from other countries, but on the other hand, invested in research, made their own equipment, gradually replaced imported machines. Password.
In fact, the average export price of shoes in Vietnam is no longer cheap, partly due to the higher labor costs. The average price of Vietnam’s shoes exported to the world is about 17 USD / pair, the average export price of Europe is 25 USD, while the average export price of shoes worldwide is approximately 9 USD. Moreover, with the average time of exporting shoes to the US is 30 days, the cost of transporting a pair of shoes is approximately USD 1, that is not including import tax prescribed by this country.
Vietnam can take advantage of the US opportunity to impose high taxes on shoes from China to realize this goal. But Vietnam’s shoe industry cannot have good competitiveness or sustainable development in the US market in particular, the world in general, if the whole industry does not quickly overcome inherent technological problems, Production scale, high quality manpower and productivity.
Ms. Truong Thi Thuy Lien, General Director of Lien Phat Company (Binh Duong), said that footwear enterprises have to spend a lot of money to import machinery. Meanwhile, the domestic supporting industry grows more slowly than the demand of the shoe industry, the localization rate of the whole industry is only 40-45%, focusing mainly on two minor items: shoe sole and sole. sew.
Thus, the problem for Vietnam is not only for China to shift production, the Government needs to focus more on research and development, applying high technology to free labor, ensuring conditions for Domestic enterprises develop sustainably in the context of fluctuating world economy.
* Source: Investment bridge