However, the Vietnam Textile and Apparel Association (VITAS) is concerned that the situation will worsen in the next five months due to three unfavorable factors, including:
• Weakening demand of trade partners
• Labor shortages
• Faltering financial situation of many local textile firms
Weakening demand of trade partners
The first factor is the weakening demand of Việt Nam’s trade partners. Specifically, China, Japan, and many other countries are tightening their preventive measures against COVID-19, causing trade disruptions. High inflation in large importers such as the US and EU fuel the situation by eroding consumer buying power, further dragging down textile demand. It is also worth noting that the Russia-Ukraine conflict will likely grow fiercer in the short term. With the conflict unabated, textile flows to the countries would remain low for several months.
Meanwhile, the recent depreciation of neighboring currencies against the US dollar disadvantaged Vietnamese exporters. The Chinese yuan has depreciated by 5.3% and the Japanese yen by 16% against the US dollar, whereas the Vietnamese đồng by just 1.8%, eroding Vietnamese textiles’ price advantages. On top of that, the US’s Uyghur Forced Labour Prevention Act (UFLP) and the EU’s plan on carbon fees are expected to set the bar high on cotton. Vietnamese firms thus must overcome more administrative barriers to bring their cotton-derived products to those markets.
Labor shortages
The second factor is labor shortages caused by shrinking urban labor forces. It is a burning issue because textiles is a labor-intensive industry. Since many workers left cities during the pandemic and never returned, and others took early retirement, the industry is expected to remain slack for the rest of 2022.
Faltering financial situation
The last factor is the faltering financial situation of many textile firms amid mounting costs. Notably, input costs have increased by around 25%, and transport costs have tripled since early in the year. As the firms were drained inside-out during the pandemic, mounting costs are expected to drive them further into economic woes, eroding profits and hampering expansion. VITAS urged the Government to approve “The Development Strategy for Textile and Footwear Industries to 2030, with a Vision to 2035” to benefit better from free trade agreements (FTAs) as the strategy would pave the way for large industrial parks that meet FTAs standards. VITAS also called for the abolition of several tariffs on imported goods used to manufacture exports since the tariffs are believed to discourage textile trade.