August 16, 2016    3 minute read

What Does The TPP Mean For Vietnam?

Not An Easy Partnership    August 16, 2016    3 minute read

What Does The TPP Mean For Vietnam?

The Trans-Pacific Partnership (TPP) is a trade deal between 12 countries spanning from the United States to the Asian Pacific. This deal is set to increase trade volumes between the respective countries and strengthen individual domestic export industries. The aim of this agreement is to remove all tariffs on major commodities traded between the regions and many believe that it will improve the US’ 11.7m people export industry by eliminating taxes on goods. However, will countries such as Vietnam see the same kind of benefits?

The TPP And The Labour Market

With all tariffs eventually being reduced to zero, competitiveness in trade between the countries involved in the TPP will intensify. Firms will have to find cost-saving advantages to retain their market share. This could have adverse effects on the labour force, especially in countries such as Vietnam and Malaysia. Cost saving strategies could lead to wage cuts in order to maintain competitiveness, especially if the relative price of raw materials for manufactured goods stays the same. A wage cut in Vietnam would greatly affect the livelihood of many of the country’s workers, due to the current nature of the Vietnamese economy. Vietnam’s fast-growing economy means that many will not be able to meet basic living needs, as general price levels are pushed up by the growing middle class. Those who do not see wage rises will be affected the most.

What is more concerning is that there is no clear practice for enforcing a respectable standard of working conditions. The TPP may just fuel an unsafe and unfair manufacturing sector. Vietnam has been called out for its lack of rights and regulations regarding labour. There are many cases of child labour, exploitation and dangerous working conditions. This could hinder the trade benefits Vietnam sees from the TPP. Workers rights is a current topic, consumers care about how their product is made and whether it meets their ethical standards. Ethics influences consumer choice and a lack of industry standards will reduce demand for goods which are produced unethically.

Investment Boom

Vietnam has a strong foothold in the textiles and apparel industry, and the TPP will further enhance its market share by increasing the volume of trade with the US and Japan. The removal of tariffs is likely to prompt more foreign direct investments (FDI) as there will be a higher demand for Vietnamese exports. More FDI is vital to Vietnam’s development as it creates new jobs and helps build new infrastructure. Moreover, it will allow production to be scaled up, letting firms take advantage of economies of scale. Investor confidence is key, as Vietnam is a hot spot for new startups, and the TPP could offer reassurance to investors.

Overall, the TPP will bring in new investment and trade for Vietnam and it has the potential to significantly contribute to the development of the country’s economy. It is likely there will be an influx of FDI into the country in the coming year, and this will bring growth, jobs and wealth to the nation. However, this could all be undone in the next US presidential elections as it seems that both candidates running will be opposing the TPP.

There are also key issues which must be addressed – it must be the job of the government to develop industry standards. This will ensure that the labour force will be protected at work but, above all, it will introduce a new way of working, one which is more suited for the direction in which Vietnam is heading.

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