Catch up posts — VietEcon

Just a few posts to 1) tell you what is running through my mind right now and 2) get through my tabs.

First, the coronavirus comes to Vietnam: Two Chinese citizens have brought the coronavirus to Vietnam. I don’t have to tell you, but the timing on this couldn’t be worse with Tet starting tomorrow. There have been too many virus disaster movies over the past 20 years for me not to be scared that this is going to lead to something much worse. The WHO still says it is not a global health emergency. Let’s hope it doesn’t become a regional emergency.

It doesn’t help Vietnam that the two Chinese traveled to Hanoi, Nha Trang and HCMC. Hopefully not everyone they came in contact with them got the virus. Vietnam has stopped travel to/from Wuhan, which is good but maybe too late.

China now has blocked travel for 35 million people. That’s just 2.4% of China’s population, but it’s still a lot. That would be the 41st largest country in the world, just behind Morocco and bigger than Saudi Arabia.

The virus kills almost 3% of the people who get it, based on the official numbers of 26 deaths in 900 cases. Who knows what the actual figure is, because it is very likely that both the numerator and denominator are higher.

Second, the minimum wage has been raised. (Thanks to Vietnam Briefing for the information in this post.) I think this is great, but I am a bit worried that Vietnam will soon be pricing itself out of the market for low-wage labor. Given the push to manufacture in Vietnam and a limited labor supply, this might be a good thing.

The wage is up more than 5% yoy, but the exact amount varies by regions. Region 1, which is the urban and suburban districts of Hanoi, Hai Phong and HCMC all now have a minimum of $190 per month, or $6.25 a day. The rural areas have a minimum wage of $132 per month or $4.34 per day.

Compared to other Asian countries, Vietnam doesn’t look so bad, especially given the infrastructure and its location. The only place that really gives Vietnam a run for its money is the Philippines. If wages continue to go up in Vietnam, I wouldn’t be surprised to see Philippines and Cambodia benefit.

I am less worried about Laos (land-locked, poor infrastructure), Indonesia (the low wages are likely for areas with poor infrastructure) and India (bureaucracy is tough there).

Traffic acciddents and beer sales falling: In good news for public health, there is a tough new drunk-driving law in Vietnam. According to the WHO, 26 people for every 100,000 died from a road accident in 2016 (the last year for which data is available). That’s high, second only to Thailand in ASEAN. Singapore is at 2.6.

The police fined thousands of people in the first two weeks after the new law went into effect, and “fatal accidents dropped by 13% compared to the previous fortnight.” If this continued, then Vietnam would only be third (!) in terms of traffic accidents, all else being equal.

There is a downside to the new law: beer sales are cratering. In the article linked to above, the number of customers at one place dropped 80%, and another said revenues were down 50%. Real stats seem to point to a 25% decline in beer sales.

Like Brett Kavanaugh, I love beer. But the trade off seems fairly good to me. Plus, beer sales are probably going to pick up once people figure out how to get home.

An alternative to the WHO: This isn’t an article about Vietnam, but it is about trade and it very well could become a Vietnam story. The EU, China and 15 other countries have signed an agreement to set up an alternative to the WTO. Vietnam might want to join this, or they could be pressured to join it once they have an approved FTA with the EU.

If you haven’t been following the WTO closely (and why would you), it is unable to resolve disputes because of American/Trump intransigence. The WTO has an Appellate Body with 7 members, and to decide anything it needs a quorum of 3. Right now it only has 1 member! That’s because it the US blocked all nominees.

Just to be clear, the WTO can still resolve disputes that are not appealed (although now everyone will likely just appeal), and countries can resolve things on their own. But there will not be an official resolution.

There are a lot of reasons why the US administration has done so:

It hasn’t liked the rulings (not just Trump, but also Obama).
It disagrees over what the appellate body should do: Rule on the contracts (trade agreements) signed or create rules to deal with new issues. The EU favors the latter, the US the former.
It doesn’t like how China has been able to take advantage of the WTO process.
It believes that the US would get more of what it wants without the WTO.
It doesn’t like how long disputes take to be resolved: 1,267 days or 3.5 years.

These are all fine reasons, some of which I agree with. My issue is that now there is going to be an alternative body, which the US has no role in. It will not be able to shape it at all, and it could allow these countries to run around the US deciding things that will affect the US. That’s not great for the US.

The Trump Administration came into office promising to blow up the world. It is breaking the WTO, NATO, the UN, the International Criminal Court, and NAFTA. Oh, and the World Bank and the IMF. There are a lot of problems with all of these institutions, some of which have been led by the US for years (so America deserves some of the blame here), but I don’t think it is great to just get rid of them and leave a vacuum in their wake. A vacuum will be filled, and it will probably be filled by others, those without US values in mind.