Our leaders in Washington have been complaining about Vietnam and how they manipulate their currency so as to generate unfair competition for the USA. Their currency is known as the dong and that's another story but the rub comes because it is alleged that they purposely create and sell a lot of dong in international currency markets so as to cause the dong to depreciate against the dollar and other currencies.
President Biden has backed away from naming Vietnam an unfair competitor, a label created by President Trump. But there remain negotiations between our nations and Vietnam has promised not to engage in predatory exchange rate practices. The light still shines on them.
One of my points is that this currency depreciation is an old story and doesn't exist if data is true. But even if it were true, complaining about Vietnam brings about my second point. That is we must have gotten really desperate to complain about a country that is both poor and tiny.
Vietnam has 98 million people who earn on the average $3,600 per year. Yes you read that right. The average US citizen makes $63,000 per year.
While their GDP per year is $355 billion, ours is $22 trillion. Yep, they produce one third of a trillion and we produce about 66 times that.
Here is a good one to think about. We export to the world each year $2.6 trillion of goods and services. We import $3.2 trillion. Vietnam exports $290 billion. While Vietnam punches above its weight in trade, their total exports to the entire world only amount to about 9% of what we buy from the world. Or put another way, even if we stopped all imports of Vietnamese goods and services, US imports would still be $2.9 trillion and our trade deficit would still be about $300 billion.
We are worried about unfair competition from Vietnam?
Back to the Vietnamese currency issue. Between 2003 and 2012 the dong depreciated against the dollar by 35%. Between 2012 and 2021 the depreciation was a total of 14%. Between 2019 and 2021 it was zero. Zilch. Nada.
Hmm. We all know that Vietnam is a developing country. It is a poor developing country. A novice boxer needs to attend to a lot of skills and practice before entering the ring. Vietnam is in a very competitive ring. We have bigger eggs to fry than to complain about unfair competition from Vietnam.
Vietnam USA
Population (millions) 98 333
Percapita GDP ($) 3,600 63,000
Nom. GDP (Billions $) 355 22,000
Exports (Billion $) 290 2,600
Imports (Billion $) NA 3,200
Agree that we should not look too hard or too deeply to criticize Vietnam. One has to be impressed with their drive to succeed despite their skill set being mostly still 19th century. There are exceptions, e.g. Samsung has its largest plant there and employs a huge number of people in electronic assembly. But they are still mostly a "shirts and shorts" economy and moving business out of China in their direction is difficult. The single most compelling issue regarding Vietnam is their ever present fear of being overrun ( for the umpteenth time) by China. So they will only take their economic development so far and will not emerge as a significant competition for China except around relatively insignificant margins.
ReplyDeleteThanks Ed -- interesting insights. Your point suggests that Vietnam won't be much competition for the US. Strange that our leaders might spend even a moment worrying about it.
DeleteI think that the US concern is more likely to be how to get Vietnam actively engaged in global commerce. They clearly have the ability to amass hordes of workers in spaces that are not much wider than a cargo container, utilize rudimentary equipment, and produce very low cost consumer goods--at a level that the Chinese actually endorse. Clearly the Chinese do not want a failed economy on their border and are happy to have them thrive at a subsistence level. There is some evidence that an economy of "haves" are surfacing among the vast numbers of subsistence livelihoods. A potential solution for American industry that wants to be connected to overseas labor forces is to endorse increased engagement with India where there exists both a low level consumer staples workforce but also a vast array of well educated 21st century technocrats that could begin to drain dependence on China for higher technology sourcing. However, wherever there is a common border with China there is a strong likelihood of them exerting mutilple forms of control.
ReplyDeleteThanks Ed. Again - good points you are adding to this blog! Globalization of business has been a multi-headed hydra for a long time. The efficiencies gained by rich nations by engaging with poorer nations are undeniable. Vietnam and India are great examples. But the rest of the story is politics and some ideology. If one American is "harmed" by trade with Vietnam, then we forget the efficiencies and dwell on social cost.
DeleteI think your observation about "social cost" is an excellent one. One of the strengths of our country, and it's underlying economy, is the ability of very small groups to strike out in a risky direction and maybe grab the brass ring as a consequence of their efforts and diligence in pursuit of a dream. But that same strength may be a weakness when it comes to the country as a whole looking to strategic positioning on certain industries or lines of business. As an example, Turkey has a stated national policy of prohibiting food exports, both in terms of type and quantity, unless they are beyond levels that have been calculated to be sufficient to make the country free of any food dependency. They have similar considerations for the bottom level of Maslow's Triangle so that dependency is more limited to discretionary goods rather than staples that ensure the basic survival of the population. I can't imagine the US actually being able to identify and get agreement on any protectionist product absent being on almost a war footing. Yes we put tariffs and impose external costs on certain items but I don't ever have the feeling that this is part of a strategy of both self preservation and future development as much as it is a tool to punish the politically unacceptable country of the moment.
ReplyDeleteI can't sit here and name them all, but tariffs are not used just to punish other countries. We often protect our farmers, steelmakers, and so on. It's very political and often consumers end up paying a lot more to protect the jobs and what sometimes are a very small class of injured parties. Damn efficiency -- in the name of politics.
DeleteI completely agree that there are appropriate protectionist purposes for tariffs. I Think what I don't see is any underlying strategy for the US which my Turney example was meant to support. The political component is very obvious and I am sure, to some extent, unavoidable. Here in Florida we daily witness the huge amounts fo federal dollars going to the re-protection of the Everglades--certainly a good cause the is trying to address 100+ years of dumb decisions. The underlying protected industry is the powerful "big sugar" industry which is a line of business we simply don't need on any strategic level. So we punish Cuba which is an easy and plentiful source of sugar to protect a business which produces a product at a higher consumer cost than is necessary and protect an old, dying industry that has, and continues to, cost us huge sums of environmental money. Higher prices at the store, higher taxes to support the environmental impact, and no strategic objective anywhere in sight. Sweet!
ReplyDeleteThe strategic objective is in plain sight. :-) Get reelected. I agree with you -- no apparent strategic objective beyond reelection!
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