Baby’s back! Plus trade data

I am finally back after a long time away. Hope you haven’t missed me too much, but I was busy doing…other things. Now I am back and will be posting regularly again.

The big thing that happened while I was away, at least in terms of economics, is that the trade war between the US and China has escalated, throwing markets (physical and stock) in disarray. That combined with weak manufacturing data in the UK, Malaysia, the US, Germany, among others, means that the sentiment is pretty negative worldwide. We are starting to see that with consumer sentiment in the US, where it has fallen to the lowest level since Trump took office. This is bad for Trump, and it is starting to show up in his polling. A majority of Americans disapprove of Trump’s handling of the economy. That’s new, and worrying for Trump. My view is that Trump’s overall approval ratings have held up only because of a strong economy. If the economy is bad or even if people just think it is, it is going to be hard for him to win reelection.

So what does this have to do with Vietnam. Well, just that the trade deficit is something that Trump talks about a lot, and Vietnam is now quite high up there, #6 in terms of balance of goods deficit. The charts below show the balance in goods for June 2019 and year-to-date as well as comparative figures for 2018. (The one on the left includes China, but then it is hard to see the rest, so the one on the left takes China out to see the rest). Vietnam has gotten much worse in absolute numbers rising from a deficit of $18bn to $25bn, although the ranking has remained the same.

If I were the Vietnamese seeing these figures, I would be pretty nervous. It is by far the most vulnerable of any of these countries - the EU can stand up for itself, and China too. Mexico is already negotiating, so that leaves Vietnam along with Malaysia and India as the ones that are under threat.

There is very little that Vietnam can do about this, especially because it continues to attract manufacturing and foreign direct investment. The most recent manufacturing PMI continues to be above 50 (an indication of expansion), albeit at a fairly low level. Unless it lets its currency rise (or forces it to), it seems unlikely to stop the trend.

But that’s fine! Just remember, these deficits have to be counterbalanced by capital & financials accounts. So the current account for the US is negative, but that means the capital and financial accounts have to be positive. It’s an equation that has to balance. So the deficit in the current account just means that the US is attracting money into its capital/financial accounts, lots of which is going into treasuries. But also into bonds and the stock market and businesses. Given that the US prints its own currency, it is very unlikely it will face a dangerous reversal in balances that could threaten the country.

Having said that, Trump really hates trade deficits, and the US has a big one with Vietnam. If I were going to advise the Vietnamese government, I would tell them to make as many declarations as possible about their desire to lower the deficit in the short term. And hope that Trump is too busy with China that he forgets about Vietnam. Then he loses in 2020.

THE US BALANCE OF PAYMENTS IN GOODS IN JUNE 2019 COMPARED TO 2018.

THE US BALANCE OF PAYMENTS IN JUNE 2019 COMPARED TO JUNE 2018

THE US BALANCE OF PAYMENTS IN GOODS IN JUNE 2019 COMPARED TO 2018.

THE US BALANCE OF PAYMENTS IN GOODS IN JUNE 2019 COMPARED TO 2018.