When Chinese e-commerce giant Temu officially launched in Vietnam last month the hype was palpable. Not only had the firm dropped a small fortune on advertising but it had also ruffled feathers in Vietnam’s business community: Temu’s goods were too cheap and Vietnamese producers could not compete. With a narrative containing two things Vietnamese love–huge discounts and hating on China–the local media piled on.
Indeed, the volume of news media coverage, largely editorialising whether it was labelled as such or not, went well beyond what was probably necessary. That said, there were a few interesting points made, particularly with respect to what is and isn’t fair in international trade, that warrant a little further analysis.
Firstly to dispel the most obvious, the value-added tax applied on goods sold within Vietnam but not on imported goods worth less than US$39 is not particularly fair on domestic businesses. That said, this has been a known problem for some time and no action has been taken, ergo there is nothing new to see here.
On that note, however, it’s not just in cross-border tax reform that Vietnam has been slow to move.
China has invested heavily in supply chain logistics and infrastructure which has given e-commerce firms a leg up. Notably, this has been largely financed with government debt which was at 77 percent of GDP as of 2022.
Vietnam, on the other, has not invested heavily in infrastructure, or at least to the extent of its neighbour to the north.
For example, in 2010, when China’s GDP per capita was about the same as Vietnam now, China had around 8,000 kilometres of high-speed rail. Vietnam, on the other hand, is only just now talking about building its first.
That said, Vietnam’s debt to GDP in 2022 was just 37 percent, less than half of China’s, and it’s actually coming down. This seems to be intentional as well, framed as a means of insulating Vietnam from foreign influence.
And there is nothing wrong with that, however, this comes at an economic cost. As the old adage goes: You can’t have your cake and eat it too.
This applies to free trade more broadly as well. In order to gain access to foreign markets parties to a free trade agreement must allow access to their own.
That’s not to diminish the anxieties of the business owners that have been all over the news talking about Temu. In free trade, though everyone wins with cheaper prices, in the transition there are generally losers and they are generally concentrated–whereas everyone can buy a pair of flip-flops from China at half price, it’s generally only one or two competing flip-flop-making factories that are put out of business. For these businesses and the people who depend on them, the threat Temu poses is very real as are their experiences and they should be acknowledged.
The reality is, however, that this is how free trade works.
That said, in theory, free trade should really go hand in hand with free market economics whereby the market determines what should and should not be produced.
Of course, that’s not always the case. Sometimes governments intervene to support one producer or another for whatever reason. China, in particular, has been singled out many times for distorting markets through government intervention, particularly lately as its own consumers have cut back on spending and its factories have had to find other markets for their goods–steel and electric car exports from China, in particular, have been a major focus of trade remedies action this year.
And the means by which China supports its private enterprises could be a legitimate grievance with respect to Temu’s ability to offer huge price cuts, except for the fact that Vietnam does this too. Notably, earlier this year the US Department of Commerce found that despite a shift away from a command economy the reforms were not sufficient to earn the country market economy status in its eyes.
Likewise, there has been an avalanche of antidumping and countervailing duties investigations into goods produced in Vietnam. To be fair, it has largely been argued that this is because China has been using Vietnam as a middle-person to get around US tariffs, however, a number of Vietnamese businesses have been implicated too.
In this context, the debate about cheap goods from abroad flooding markets is a really good discussion to be having but the scope should be broadened to include how Vietnam does business too.
That is to say, there is a unique opportunity here to leverage this Temu-induced anxiety into a narrative around reform and free trade and what it does and how it works and exactly how and where Vietnam fits, or at least how it sees its role, in the global trading regime.
Whether or not this will be seen as such is, to be frank, unlikely. The Temu-disruptor narrative seems to be waning already, and the local press looks to have moved on. This should not be confused, however, with a reality in which the issues Temu’s market entry has raised have been resolved. On the contrary, Temu looks to have kicked up a lot of dust in its journey south of the border and it’s far from clear how that dust might settle.