Trade balance and growth

Vietnamese Customs reported preliminary figures for exports and imports in 2019 today (Monday). Total exports in 2019 were $264bn, compared to imports of $253bn. This resulted in a surplus of $11.12bn.

Source: Vietnamese customs, chart by Vietecon.com

Exports grew 8.4%, which was faster than the growth of imports at 6.8%. Surprisingly though, December exports fell 1% m-o-m, while imports were up 4.5%, with a trade surplus of just $259m. This may have something to do with the wind-down of exports in December (Christmas presents have to be on a plane in November, and on a boat in August or September). So I wouldn’t read too much into it.

What continues to blow my mind is that smartphones and spare parts made up almost 20% of exports at $51.38 (+4.4%). And almost all of these are from Samsung! That’s one company that makes up almost a fifth of a country’s exports.

SOURCE: US INTERNATIONAL TRADE COMMISSION DATA, CHARTS BY VIETECON.COM

Rice: In mixed news, rice exports increased to 6.4m tonnes, up 4.2% yoy, in 2019. Unfortunately, revenue dropped 8.3% to $2.8bn, as rice prices . I have detailed data on exports to the US, and this is definitely in line with what we have seen in this trade relationship. Since 2014, cereal exports (most of which are probably rice) to the US have fallen every year. For 9M2019 they were down 16%.

Source: USDA, World Bank, via Indexmundi.com

The funny thing is that prices of rice overall don’t seem to be trending down as much as they have been for Vietnam. The chart on the right has the price of rice according to the US Department of Agriculture. Funnily enough, it is based on Bangkok white rice, which is at least geographically close. Anyway, you can see that the price of rice has not fallen all that much. This data only goes through November, but the average price of rice in 2019 was down less than 1%.

So Vietnam is able to export more, but it is getting less for each ton of rice. That’s not great. At least Vietnam is self sufficient in rice, as long as the delta remains the delta.

Source: World Bank, 2019 is Vietecon.com estimate based on government statistics.

Trade to GDP: We could spend days looking at the specific products/commodities that Vietnam exported in 2019, but I want to step back a second. The big picture is that the overall trade surplus grew quite impressively this year.

It is now back to its heights at above 4% of GDP. By my estimate, based on government reported statistics, GDP grew something like $24.5bn in 2019. Of which, $4.4bn was solely the current account surplus (going from $6.8bn to $11.1bn, or 17.8% of the total. So export growth was a major driver of Vietnam’s ability to meet its GDP growth targets. But a big part of the growth in exports was due to something that Vietnam had no part in, the US-Chinese trade war.

What I am getting at is that the growth we have seen in 2019, while quite impressive, isn’t on the solidest of ground. Not that it could easily reverse; companies are setting up manufacturing in Vietnam and that investment should be sticky. But future growth may be more difficult and continue to depend on externalities.

Notably, and this is what I will get into when I discuss productivity later this week, high wages and a shortage of workers are making Vietnam less attractive. See this article on furniture manufacturers looking at Cambodia because it doesn’t make economic sense to invest more in Vietnam. Of course, human capital is even less skilled in Cambodia, but at least there are inexpensive workers.

Ultimately, for Vietnam to retain this manufacturing base, it would be great if it could boost productivity, so that companies’ cost-benefit calculations would continue to make sense.

I have gotten a bit off base. Back to the main story here: exports were a killer in 2019. And that helped Vietnam drive very good GDP growth.