The Unintended Consequences of Tariffs

Briefing|The Unintended Consequences of Tariffs

Donald Trump promises to impose big tariffs on Chinese products. The last time he did that, in 2018, he made at least one country boom: Vietnam.

Since it suddenly cost more to export things from China, businesses moved across the border. Especially in northern Vietnam, factories have replaced rice fields, growth rates have stayed in double-digits and exports to the United States have surged. For the first time since the 1800s, the region — once poverty-stricken — is now the country’s main economic engine.

Northern Vietnam’s rise is an example of the unintended consequences of a trade war: The biggest benefits often emerge outside the countries engaged in the dispute. In today’s newsletter, I’ll explain three aspects of our new and unpredictable economic age.

Industrial dispersion

Northern Vietnam’s boom shows that tariffs on one country tend to spread industrialization to others nearby.

I recently visited Haiphong, the main port city in the north. I wrote a story that The Times published today about how its export boom is hard to miss, with cranes swinging overhead and trucks rattling down new highways. Companies like LG (of South Korea) and Pegatron (a Taiwanese supplier for Apple and Microsoft) have built factories that employ tens of thousands of workers earning about $500 a month.

Many exporters relocated quickly to Vietnam, one economist told me, because they preferred to be out of China but close to Chinese suppliers. This reduced U.S. dependence on China and roughly tripled America’s trade deficit with Vietnam. Only China and Mexico now have larger trade imbalances with the United States, selling far more to America than they buy.