Trade updates — VietEcon

I’m not sure about you, but I keep a browser on my computer with countless tabs open to different stories about Vietnam. Some of them are bigger ideas that I will write about in long form, and then some of them are ideas that revolve around a theme but with different aspects. Right now, there are a bunch of trade stories that add up to something important.

Source: US International Trade Commission data, charts by Vietecon.com

Let me set the background here: Vietnamese exports are killing it. We have talked about this recently in my post last Thursday on Korean trade. In the chart to the right, I show Vietnamese exports to the US, which, through September, were already equal to all of 2018. And 2018 was up 6% yoy.

The growth rate has been enormous. Exports have grown 25.7% annually (!) since 1996 to 2018. Add to that the growth of 35% year-over-year this year through September.

As part of this, lots of companies are investing in logistics. We talked about this with Keppel previously. Now we have a freight forwarder, Flexport, partnering with Vietnam’s Indo Trans Logistics (ITL) to open a new container freight station outside HCMC. This is just part of the general trend of more trade in Vietnam:

“Meanwhile, Vietnam’s port volumes have grown by double-digits in recent years, reaching nearly 13m teu last year on the back of the country’s booming export industry.”

It’s not just manufacturing exports. Farm products are drawing investment too. I found this article interesting, because it shows that Vietnam continues to be a site for exports of farm products. Olam, a Singapore food manufacturer, is investing in Vietnam. I didn’t know this:

“Vietnam accounts for about 40% of global pepper production, and roughly 60% of trade in the commodity. The country's climate and soil properties are well suited for pepper cultivation, and the government has championed the farm produce as a strategic export.”

Olam is also producing almonds and cashews and processing them.

Some other tidbits about Olam:

Not all production is for exports. The company is increasing its domestic sales to 15-20% from 10% currently.
Lumber in Vietnam is not doing well and will be divested/closed. That’s despite a massive increase in exports to the US of wood. The EU also has opened its markets to Vietnamese lumber.

But not all food exports are doing well. Specifically, coffee is going through a rough patch. Mainly because Vietnamese coffee is fairly low quality. I wrote about this in June and May. Here is a story about manufacturers working hard to move up the value chain.

Coffee exports to the US are not looking great, down in both 2017 and 2018, and down year-to-date (see chart to right).

It’s mostly beans, which aren’t worth all that much these days. ‘[I]n 2018, the volume of processed coffee accounted for just over 7%, but the value was very high,” Tu informed.’ Part of what Olam is investing in is more processing of the raw materials, in order to boost the value of what they produce, just like these coffee companies are.

Finally, this is an old story (Oct 27) and one I should have talked about when I talked about South-South trade: Vietnam put duties on Chinese and Korean steel:

Anti-dumping duties of 2.53% to 34.27% are being applied to steel products from China, Vietnam’s Ministry of Industry and Trade said in a statement on its website. Tariffs of 4.71% to 19.25% are imposed on steel products from South Korea.

There are already anti-dumping duties on cold-rolled stainless steel products from other Asian countries.

I think people generally do not think of Vietnam as a country that has lots of big industrial companies that are able to compete. Well, its iron and steel exports would appear to show a different story. I actually didn’t think that Vietnam exported any iron and steel to the US, but it turns out that they do, and it is not actually that small at $723m for 2018. [I am a bit worried that this is just Chinese or Korean steel being shipped through in order to sidestep tariffs on those countries’ steel exports, so let me just leave a caveat here for that.] Exports have fallen this year, but still are in the hundreds of millions of dollars.

Anyway, these new steel duties should help product the domestic manufacturers, even if they go against classic trade economics, which are generally against any tariffs. If you want to continue to have a steel industry, you may have to put up tariffs or else see your companies be driven bankrupt by cheap imports from elsewhere. Cheaper imports may be good for end consumers, but you then have to deal with laid-off workers and, potentially, the failure of all of the accompanying industries.

The US went through this with almost of all of its manufacturing, and many now regret that. It will be interesting to see if Vietnam ever becomes a major steel producer or even just is able to continue to produce steel profitably. It might be a struggle, even with these tariffs.