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2020: A success, 2021: An unkown

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Although up to this time, comprehensive export and import volumes and value in 2020 have not yet been released, the result is expected to be satisfactory given recent positive developments. However, what will become of 2021 remains largely unknown.

Although it failed to fulfill the year’s targets, Vietnam’s export is not only a key growth driver for the economy but also a rising star on the international marketplace.

A government report submitted to the National Assembly last October projected the export growth in 2020 at only 3.5-4% In reality, the total export sales for the whole year might amount to US$281 billion, posting growth rate of 6.5%.

Compared to the 7% growth target, Vietnam almost made it. This was the third time during the past 10 years the country failed to achieve this important goal. Nevertheless, in the context that the domestic market was gloomy due to Covid-19, export still played an important role in enabling the economy to reach an overall growth rate of 2.91%.

First of all, instead of attaining an average growth rate of 13.4% per year as in the past 10 years, Vietnam’s total retail sales and service and consumption revenue in 2020 are estimated to rise only 2.4%; and if compared to gross domestic product (GDP), export accounted for 82.6%, up 2.4 percentage points year-on-year, whereas the total amount of retail sales, services and consumption revenue were just 63.5%, down 1.1 percentage points.

In other words, instead of contributing 52% to the output of economic growth in 2019, export in 2020 made up 66.4% of the output economic growth, while the domestic market with nearly 100 million consumers contributed 33.6% (instead of 48%) because of Covid-19.

Vietnam’s growth rate higher than that of the top-40 exporting countries in the world during the past decade (2010-2019) helped Vietnam pick up a staggering 18 notches—from the 41st to the 23rd—in the list of 50 nations having the largest exports in the world compiled by the World Trade Organization (WTO). It is very likely that Vietnam’s position in 2020 will be further improved.

Secondly, while export growth rate was positive, import tended to be stagnant despite a year-on-year surge of 22.7% in December. As a result, Vietnam obtained a record high trade surplus of US$19.1 billion in 2020.

It should be emphasized here that the argument which asserts a decrease in import will give rise to an increase in trade surplus associated with a shortage of materials for production is probably groundless. Statistics show that the total import spending of 18 commodities was over US$51 billion, down 11.3% from 2019, but compared with 2019 prices, Vietnam benefited more than US$25 billion. That means if the price decrease was excluded, the import value would rise by 32.3% while import volume would rise by 12%.

This indicates that the record trade surplus comes from the fact that Vietnam has accelerated export plus the “basket of imports” includes many groups of goods having sharp price decrease, which help Vietnam earn huge profits from price fluctuations in the world.

Meanwhile, the “basket of exports” shows that the processing and manufacturing industry contributed a great deal to the record trade surplus. In 2017, Vietnam incurred a trade deficit of US$6.5 billion from these groups of goods; the country saw a trade surplus of US$4.7 billion in 2018; the figure soared to US$9.2 billion in 2019, and is estimated to reach US$14.5 billion in 2020.

Thirdly, viewed under the export market structure, the United States is perhaps a motive for Vietnam to obtain her export targets and trade surplus. It is estimated that export turnover to this market in 2020 will reach US$76 billion, accounting for 27.2% of the total export revenue to the world, whereas import spending will be around US$13.5 billion, resulting in a trade surplus of US$62.9 billion with the U.S.

Meanwhile, Vietnam suffered huge trade deficit with China and South Korea, US$35.4 billion and US$27.5 billion, respectively.

Unknown for 2021

It is forecast that the world economy post-Covid-19 will recover this year, but the recovery process will not be the same for all nations, especially less positive for the U.S. and European countries. The International Monetary Fund (IMF) has forecast that while GDP of the emerging economies and developing countries increases 6.05%, that of developed countries rises just 3.6%. This is not a positive signal for Vietnam’s export prospect in 2021.

The U.S. and Europe are the major export markets of Vietnam, so their slow recovery makes it hard for Vietnam to boost export into these countries.

In addition, the fact that the U.S. designates Vietnam as a currency manipulator—although it has not yet exerted any impact on Vietnam’s export stateside—will prompt Vietnamese exporters and importers to be cautious, not to mention the possibility that Vietnam will find it harder to enjoy a big trade surplus again after such allegation.

To cope with the currency manipulation label, Vietnam will have to prevent goods that are deliberately disguised in made-in-Vietnam brands from being exported to the U.S. Therefore, if the fight against origin fraud is more successful, exports will decrease proportionately.

Furthermore, though the EU-Vietnam Free Trade Agreement (EVFTA) took effect a few months ago, the possibility to increase exports to this market is still much to be desired because the downward trend in 2020 still continues and the economy in this bloc is still mired in trouble in 2021.

In such context, export increase should be focused on Asian markets, particularly the member countries of the Regional Comprehensive Economic Partnership (RCEP). However, this is a formidable mission.

Statistics show that in the first 11 months of last year, Vietnam exported goods worth some US$103 billion into these regional markets, but imported nearly US$167 billion from them. Her two major partners were China and South Korea, with tremendous trade deficit. Vietnam also suffered lower trade deficit with the remaining 12 partners. These were Vietnam’s problems for years, so the hope to increase exports into these regional markets is almost impossible, especially in the short run.

In other words, decreasing trade deficit in the short run should rely on the result of the fight against origin fraud. In the long run, it should rely on the development of supporting industries as well as industrial sectors producing materials to enjoy preferential tariffs as stipulated in the EVFTA.

Given the recovery of the world economy in 2021, it is likely that prices of goods on the world market will rise, and Vietnam’s exports will not suffer from low prices as in 2020. However, her imports will not enjoy advantages in terms of prices, and she will no longer attain high trade surplus as in 2020. The soar of import in the final month of last year might be a “reverse” signal in the balance of trade in 2021, or might at least indicate that trade surplus would not be as high as in 2020.

In short, if there is no breakthrough in the fight against Covid-19 around the world, it will be hard for Vietnam to accelerate export in 2021, whereas import will soar, resulting in a decrease in trade surplus.

By Nguyen Dinh Bich

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