The fortitude of the world economy is an eye-opener. Tariffs have not resulted in the recession widely feared when US President Donald Trump imposed them in April. Some of the most vulnerable nations are not only coping, but doing pretty well.
Just look at Vietnam. Is it a case of bullet dodged or delayed impact? Vietnam’s experience tells us a lot about the trade saga. If the outlook begins to deteriorate in a meaningful way, we will see it early there. The communist-led nation has become thoroughly intertwined with the fate of global capitalism. Growth ought to be under siege — on paper. The government embraced a development strategy that hinged on attracting supply chains in apparel, furniture and low-cost production, and then began moving into technology. In doing so, it learned from the experience of China and emerging-market darlings of an earlier generation. Rapid expansion in GDP and a huge boost to living standards ensued, as did a yawning trade surplus with the US that attracted uncomfortable scrutiny. The gap is the third-largest after China and Mexico.
Such a lopsided trade relationship was not going to be cost-free indefinitely. One line of complaint held that large numbers of Chinese goods were doing little more than transiting through Vietnam en route to the US. Certainly, direct investment from its massive neighbor to the north grew significantly and if factory owners from the West wanted a cheap place close to China, but not in it, there was a lot to like.
The levies imposed by the White House in April, in theory, should have dealt a blow to this model, but Vietnam has held its own. Exports were slightly off compared with forecasts last month, but the performance has been impressive: Shipments to the US climbed 27 percent in the first 11 months of the year, reaching a record US$139 billion, data show. Manufacturing increased 12 percent last month from a year earlier. Economic growth in the third quarter was within striking distance of Hanoi’s 10 percent annual target; GDP climbed 8.2 percent, matching India’s clip and making the nation the star performer in East Asia.
Vietnam still looks like a trade war winner, the label fans pinned on it during Trump’s first term. (I was skeptical, but have come around.) The nation did not need a resilient global scene to outperform its neighbors, but it helped. Growth worldwide is to top 3 percent this year and slacken a bit to 2.9 percent next year, according to the latest projections for the biggest economies by the Organisation for Economic Co-operation and Development (OECD). The US, which has taken from China the role of disrupter in chief, will do fine, notching a 2 percent expansion. The IMF’s forecasts are similar.
OECD Secretary-General Mathias Cormann, a former Australian minister for finance, spoke for those repelled by tariffs — and who might be a little shocked that Armageddon is not yet on the doorstep. They would gradually push up costs, and curb spending and investment, he told reporters earlier this month.
Along with praise for the global economy’s springiness, there are signs that growth is to slow. The UN said that trade in goods and services is to top a record US$35 trillion this year, an increase of about 7 percent from last year. The biggest chunk occurred in the first half, due to an earlier surge attributed to stockpiling, as companies built up inventories in anticipation of tariff shocks. Vietnam would have benefited from that.
Hanoi was smart to engage with Washington early on. The levy was negotiated down from 46 percent to 20 percent, the level that most of Southeast Asia ended up with, accompanied by a pact to crack down on transshipments: The movement of goods that are substantially made in China and routed through third countries, such as Vietnam, and on to the US.
This is difficult to get right when you are trying to become indispensable to the supply chain. Few products are made in any single place. Where did the most significant component originate, and does it provide the essential character of the item. With luck, the slowdown will not be deep. Vietnam needs the factories to keep humming. Its development still lags many peers that got into the low-cost manufacturing game far earlier, such as Thailand, Malaysia and Singapore. Hanoi wants upper-middle-income status by the end of this decade. It is hard to square that with a cratering of trade.
Consumers around the world need the stuff Vietnam churns out, ranging from sneakers to furniture and computers. To gauge the health of world commerce next year, look at how the Southeast Asian export powerhouse is traveling — their destinies are bound.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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