The war on globalisation is in full swing… at least, in the developed world.
We’ve written lot here about U.S. President Donald Trump’s “Fortress America” approach to global trade – which included launching a trade war with China.
And it’s not just the U.S. turning inward. Britain’s vote to exit the European Union similarly signalled a shift inward. Right-wing nationalist parties are on the rise throughout much of Europe. Brazil, the world’s eighth-largest economy, just elected a new president whose style and approach has been compared to that of President Trump.
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In short, many developed, western countries view globalisation – and the free flow of trade that comes hand-in-hand with globalisation – as a threat to their future.
One easy way to gauge the relative importance of trade to an economy is to look at the total volume of trade relative to GDP (gross domestic product). The more open the economy, the higher the ratio… and as an economy turns inward, trade would likely decline.
So with the recent shift away from globalisation by some nations, it’s no surprise that the World Bank shows international trade’s share of global GDP dropped from 61 percent in 2011 to 56 percent in 2016. In the U.S., it’s fallen from 31 percent to 27 percent.
But the sentiment on globalisation is different in the Southeast Asian country of Vietnam…
Vietnam has embraced globalisation
Asia has become the posterchild of globalisation in the 21st century, led by China. But no Asian country has embraced globalisation with such intensity as Vietnam.
Last year, Vietnam’s trade as a percentage of GDP hit over 200 percent, which is the highest level for any country of over 50 million people, according to the World Bank. (And that’s up from a ratio of 163 percent in 2011.)
Of the 20 most populous countries in the world, the country with the second-highest figure, Thailand, is far behind with trade making up just 122 percent of GDP.
(Most countries where international trade relative to economic output is even higher tend to be small, starved of natural resources and heavily reliant on trade. In those countries – for example, in Hong Kong, Singapore and Luxembourg – international trade is more than 300 percent of GDP. Trade, rather than production, is a foundation of their economies.)
With 93 million people, Vietnam is the 13th most populous country in the world. It has a sizable land area that’s similar to Malaysia, Poland, Italy and the Philippines, making it rich in natural resources.
Vietnam is also no longer poor, with a GDP per capita adjusted by purchasing power parity (PPP) of around US$6,700. (For comparison, the U.S. has a GDP per capita of US$59,500… China’s is US$15,300… and India’s is US$7,050.) That means Vietnam has a strong domestic market – a lot of people buying a lot of stuff – to supplement international trade as a building block of the economy.
So how did Vietnam become the most globalised populous country?
By opening up its cheap labour market to foreign investors, Vietnam has become a hub for low-cost manufacturing. With a monthly minimum wage of around US$170, labour costs a bit more than half of what it does in Guangdong province in China.
Vietnam makes everything from apparel and shoes to smartphones and cameras. It’s also a leading exporter of high value crops such as coffee, cashews and black pepper.
As a result, Vietnam is major exporter to the U.S. and China, and a major importer of machine parts and natural resources from South Korea and China.
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And opening itself up to globalisation has been a big boon for Vietnam, which is capitalising on some of the most favourable demographics in the world, providing the country with a large pool of young, skilled labour.
The country’s GDP per capita has grown from about US$1,500 in 1990. And the number of people living below the poverty line fell from around 70 percent in 1990 to 10 percent now.
So it’s not surprising that people in Vietnam like globalisation. A 2014 Pew Research Survey found that 95 percent of Vietnamese respondents agreed with the statement that “trade is good”.
This positive attitude towards international trade has also boosted foreign direct investment (FDI) in Vietnam. It rose 92 percent, to US$15 billion, in the first 10 months of 2018. Growing FDI is a classic sign of an open economy that welcomes trade and investments originating from other countries.
There are risks
Trade-reliant economies such as Vietnam are very dependent on the health of the global economy. If trade contracts sharply, Vietnam could be a casualty of the U.S.-China trade war, which threatens global growth. While Vietnam hasn’t been targeted by U.S. tariffs, an escalation of the trade war could see it dragged into the mix, considering its US$38 billion annual trade surplus with the U.S.
And there are also limits to how much Vietnam is willing to open its economy. The state still maintains a monopoly or controlling stake in key industries, such as electricity and petroleum. Owning land is still off-limits to non-residents. There’s also some pushback against foreign investment from people in Vietnam.
But overall, Vietnam’s relationship with the global economy only looks set to grow. The country is expected to see some of the highest rates of GDP growth anywhere in the world between now and 2030. And for now, Vietnam stands to be a big beneficiary of the trade war – as companies move production out of China and into markets that aren’t subject to higher tariffs.
In short, this is just one of the ways we’re seeing a slow but inexorable shift of the global political and economic centre, from west to east. (We’ve written more about this shift here.)
Publisher, Stansberry Churchouse Research