Vietnam’s Strategic and Economic Wellbeing in Peril if TPP Fails
By Huong Le Thu

Vietnam’s Strategic and Economic Wellbeing in Peril if TPP Fails

Dec. 01, 2016  |     |  0 comments

Vietnam, the country that is thought to be the biggest beneficiary of the Trans-Pacific Partnership (TPP), is going to be left “high and dry” by the US’ impending withdrawal from the trade deal.

Just like any country in the world, the US presidential elections were closely watched in Vietnam. But for Vietnam, the results of the US elections had an even bigger impact on security and economic policies. Vietnam’s trajectory of rapid rapprochement with the US over the last two years was seen as having highly strategic intentions. In the wake of growing tensions with China over the South China Sea dispute, Vietnam received much needed political support from Washington. Diplomatic rapprochement has since expanded into defence and military cooperation. In fact, improvement in US bilateral relations with Vietnam has arguably been one of the biggest success cases of the US’ rebalance policy. Hanoi’s positive association with Washington has surpassed its ties with Beijing, given the growing anxiety over China’s hegemonic ambitions.

On the economic front, the news is also positive. While suffering its largest trade deficit with neighboring China, Vietnam’s largest trade surplus is with the US. When Vietnam was listed as one of the 12 economies included in the TPP, many raised their eyebrows, as the Vietnamese economy is not prepared and the time for reforms is not enough. But for Vietnam, although not without stress, it means many incentives.

First of all, the economic gains: a significant economic boost and a stimulus to reform the country’s economic policies, including those related to its state-owned enterprises. Accession to the TPP trade deal marks Vietnam’s ability to integrate with the global market economy. Many sectors, including manufacturing, logistics, and agriculture, are among those that were expected to receive the largest positive impact. That is why the TPP also signifies an impetus for the second phase of the “Doi Moi” reforms and a chance to sustain the high economic growth rate. Reforms are not only critical for macro-economic gains, but are also essential at the level of small and medium enterprises. In Vietnam, both the close relationship between the political and business elites, and the highly bureaucratic environment, still prevail, hampering local entrepreneurship. Reforms that were anticipated to come along with the adjustment process to the TPP would have fostered a more conducive business environment. In other words, the TPP would have worked both as a carrot (promising further internationalization) and a stick (reinforcing the need for domestic reforms.) A cancelation or suspension of talks on the TPP means Vietnam will lose an important opportunity for international economic integration. And it is likely to result in a slow-down in Vietnamese reforms.

Trump’s lukewarm attitude towards Southeast Asia and small and middle powers does not put Vietnam in a preferential spot.

More importantly, the TPP carries political and strategic importance for Vietnam. The US has been Vietnam’s largest export market and an acceleration in Vietnam’s bilateral relations with America creates access to other significant markets. The TPP would further advance Vietnam’s economic relations in the multilateral context. The strategic option that the TPP would have offered is an alternative from economic dependency on China. That means expanding Hanoi’s political bargaining power vis-à-vis China, which is particularly relevant in the context of the ongoing disputes in the South China Sea.

However, the TPP — once hailed as the crown jewel of the American rebalance to the Asia-Pacific — is not well received domestically in the US as a good idea. It became one of the attacking points in the presidential elections. Donald Trump’s victory in the 2016 election meant that the TPP would no longer be feasible from the American point of view. Losing such an important component of the newly-found US-Vietnam friendship is bad news, particularly because the confidence-building process is still in the initial stage. Trump’s lukewarm attitude towards Southeast Asia and small and middle powers does not put Vietnam in a preferential spot. Quitting the TPP also has a symbolic meaning for Vietnam and other countries in the region. Trump’s commitment to the region is unlikely to be anywhere as close as Obama’s and the TPP is likely to only be the first sign of it. The bigger worry would be if this trend continues and the apparent disinterest towards Southeast Asia translates to the South China Sea disputes as well. At the recent APEC meeting in Peru, discussions emerged about whether the TPP could go ahead without America — in fact, the TPP’s prototype, the Trans-Pacific Strategic Economic Partnership Agreement did not feature the US. Nevertheless, there is a palpable amount of scepticism and the US’ withdrawal from the TPP will translate to a reputational cost for Washington.

Trump has yet to formulate his policies towards Asia and global security. Thus, the US’ responses to some critical issues for Asia-Pacific stability, such as the South China Sea, can be either a result of deliberate neglect or a great power–great ego lash-out. In the first scenario, the US’ engagement in Southeast Asia and interest in the ongoing dispute can be affected by Trump’s business-oriented nature towards striking a deal with China, although his attitude towards China has been ambivalent — ranging from blaming it for “stealing American jobs” and “flooding American market with cheap products” to more economic-savvy interests. Yet, however, China’s military build-up in the South China Sea may invite stronger reaction from the “macho psyche” of Trump and his idea of “making America great again.” In fact, should his idea about building some 350 Navy ships to revitalize American industry be pursued and linked to the need for an American presence in the maritime domain, opportunities for further military diplomacy and cooperation with Vietnam are not necessarily doomed.

Whichever path that Trump might take (but likely to not be consistent), countries like Vietnam will find it to be a stressful time. Adjusting to likely inconsistent policies of the big player will be highly challenging and costly for a smaller player. Moreover, Trump’s administration will take some time to learn about the nuances and specificities of the region. This will come at a high cost.

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