China is the only top economy showing clear and consistent signs of recovery in Q2 and Q3 2020 - Chinese exports we… https://t.co/4svRqDJuNL
The Trade Numerologist: Vietnam, New Export Power, Aims at Chinese, US Markets
President Trump's visit to Vietnam in February highlighted what trade officials and shipping lines have known for years: The once war-torn nation of 97 million has become the world's latest trade export powerhouse.
After recovering from the war with the US, which decimated the countryside and killed millions of people, Vietnamese leaders in the 1980s started implementing "Doi Moi", or reform, aimed at building a Chinese-style economy that would be socialist but oriented at fostering private companies.
The government's initiative included reducing public subsidies, inviting foreign investment, and participating in more trade deals with richer economies around the world. In 1994, the US lifted its trade embargo on imports from its former adversary. In 2007, Vietnam formally joined the World Trade Organization.
The result has been an economy that's been growing at over 6% a year and has been able to aggressively expand export markets around the world, especially to the US and China.
Top Vietnamese export destinations, first 11 months, 2018
- China $49.8 billion (+42%)
- US $45.4 billion (+6%)
- Japan $19.3 billion (+14%)
- South Korea $18.1 billion (+22%)
- Hong Kong $8.4 billion (+7.6%)
- Germany $8.2 billion (3.7%)
- India $6.8 billion (+78%)
- UK $6.4 billion (-0.6%)
- Netherlands $5.4 billion (+9.6%)
- Thailand $5.4 billion (+16%)
Vietnam still faces plenty of hurdles, including lingering limits on foreign ownership, pressure from Beijing to align itself with China, and the danger of runaway inflation if it grows too fast. It also has a massive informal economy, largely unregulated and untaxed, which it would like to harness. It's also heavily dependent on imports from China.
Top sources of Vietnamese imports, first 11 months, 2018
- China $75.7 billion (+18%)
- South Korea $44.5 billion (+2%)
- Japan $15 billion (+11%)
- Thailand $11.7 billion (+12%)
- Singapore $11 billion (-2%)
- Hong Kong $9.8 billion (+6%)
- Taiwan $9.3 billion (+4%)
- US $8.9 billion (+20%)
- Malaysia $7.8 billion (+35%)
- India $6.2 billion (-14%)
Vietnam is still ruled by the Communist Party but in this century it's attempted to cut back on the number of firms run solely by the state. Private companies now account for almost half of the Vietnamese economy.
Now it faces questions over how it will steer its economy. Will it, like China, build manufacturing zones and become one of the world's factories? Or will it strive to build an economy based on tech, banking, and other services?
Although Vietnam's relationship with China has sometimes been rocky, there is no doubting the importance of Chinese manufacturers investing in the country.
Chinese companies have invested heavily in building manufacturing capacity in the country, to take advantage of lower wages in Vietnam, and partly to avoid tariffs imposed by the US and Europe on goods made in China.
Top Vietnamese exports to China, first 11 months, 2018
- Electronics $20.9 billion (+22.3%)
- Electric machinery & parts $7.6 billion (+12%)
- Iron and steel $4.5 billion (+9.9%)
- Knitted or crocheted fabrics $3.3 billion (+19.4%)
- Plastics $2.8 billion (+22.3%)
- Edible vegetables $2.2 billion (+26%)
- Apparel articles & accessories $2.2 billion (+47%)
- Optical, photo, medical equipment $2.1 billion (+12%)
- Manmade filaments, fabrics $1.9 billion (+29%)
- Cotton $1.8 billion (+23%)
A key question for Vietnam is how it will be impacted by the tension over trade between the US and China. Japan, South Korea, Singapore, and China are all big investors. Companies like Samsung and Intel have plants in Vietnam. Both China and the US are vying for closer relationships with Vietnam. In February, during Trump's visit, Vietnamese aviation firms agreed to purchase over $20 billion of aircraft parts and services from Boeing and General Electric. In addition, Vietnam is ramping up exports of agricultural products, especially rice, coffee, and shrimp.
Top Vietnamese exports to US, first 11 months, 2018
- Electronics $10.2 billion (+2.4%)
- Apparel, knit or crochet $6.7 billion (+5.7%)
- Footwear $5.7 billion (+12%)
- Apparel, not knit $4.7 billion (+7.5%)
- Furniture, bedding, lamps $4.6 billion (+7.8%)
- Electric machinery & parts $2.6 billion (-9.5%)
- Edible fruit & nuts $1.2 billion (+6%)
- Leather, handbags, etc. $975.6 million (-11%)
- Fish, crustaceans $938.1 million (+15%)
- Toys & games $659 million (+14%)
After suffering from excessive inflation in the 1980s, Vietnam has embraced an economic policy of moderate growth. Policymakers have also worked to diversify the Vietnamese economy, stimulating investment in its food sector, leather industry, and plastics manufacturing.
In building on its prosperity and charting a new economic path while asserting its independence from China, Vietnam still has some trump cards it can play.
The government has hundreds of state-owned companies it's looking to privatize. When it does that, it will unlock further value and economic growth as it has a strong stock market. Inflation is low and its currency stable, and the wages are lower than in China. The population is remarkably young, with two-thirds of Vietnamese are under 35.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email email@example.com with comments and questions.
Sign up to start receiving 'The Trade Numerologist'.
- A better Q3 and clear optimism in most markets with growing concerns and uncertainty over the second wave of COVID-19
- Grain trade has supported Panamax freight rates but coal risk still remains
- E-Commerce Facilitation Measures Stimulating Cosmetics Trade
- Amid Global Volatility, Marine Insurers Are Prioritizing Data Management
- Norway’s crude oil exports down to 1.2 million b/d in September
- Atlantic Capesize freight rates spiked again with a limited number of ballasters to the west
- Charting the COVID Pandemic Effects on International Trade: October 2020
- OPEC+ September seaborne exports edge up even as overproduction is checked, non-alliance shipments fall to year low