Here we go, Vietnam, which once boasted about replacing "Made in China," is now experiencing a collapse in its export figures. Vietnam is currently like an ant on a hot pan, frantically scurrying around. Vietnam is even considering lowering interest rates to address the current difficulties in business operations.
The key issue is that while the US dollar is increasing interest rates, Vietnam wants to lower them, which seems like a self-destructive move!
Let's first look at a set of data: According to data released by the General Statistics Office of Vietnam, in July, Vietnam's exports fell by 3.5%, marking the fifth consecutive month of decline, the longest period of decline in 14 years; in the first seven months, Vietnam's export value decreased by 10.6% year-on-year, down to $194.73 billion, a drop of about $23 billion, equivalent to 165 billion yuan.
As a result, a large number of Vietnamese enterprises have started to shut down and lay off employees. Data released by the Vietnamese government's statistical office shows that in the first six months of 2023, the number of temporarily suspended businesses reached 60,200, an increase of 18.2% compared to the same period last year; businesses waiting to be dissolved reached 31,000, an increase of 28.9%; and 8,800 businesses have completed dissolution procedures, an increase of 2.8%. On average, 16,700 businesses exited the market each month, which is equivalent to 556 enterprises closing down daily. What a concept!
We all know that Vietnam's GDP grew by 8.02% in 2022, marking the highest economic increase in the past 25 years.
So we can't help but ask, with the help of the United States, why has Vietnam's manufacturing industry, which was booming, now taken a 180-degree turn?
In fact, since 2019, the United States has imposed various trade restrictions on China to curb the development of China's manufacturing industry. At the same time, the US has been vigorously supporting Vietnam's economic development, really providing both funds and personnel, with the intention of building up "Made in Vietnam" to replace "Made in China."The United States has indeed lived up to Vietnam's expectations, with well-known companies such as Foxconn, Samsung, and Apple flocking to Vietnam to establish factories under this policy. As a result, Vietnam's foreign trade exports have been on the rise, metaphorically "blossoming like sesame flowers, higher and higher" with each node.
According to data, in 2022, Vietnam's total foreign trade value exceeded 700 billion USD for the first time, reaching 732.5 billion USD, a year-on-year increase of 9.5%. Concurrently, Vietnam's GDP also grew by 8.02% compared to the previous year, marking the largest annual economic increase since 1997.
At this point, one could describe Vietnam as being a land where money is ubiquitous.
However, it is important to note that although Vietnam's total foreign trade volume reached 732.5 billion USD in 2022, its GDP for that year was only 408.8 billion USD, resulting in a foreign trade dependency ratio as high as 180%. The foreign trade dependency ratio is the percentage obtained by dividing a country's total import and export volume by its GDP.
We should be aware that our country's foreign trade dependency ratio is only 34%. This implies that Vietnam is not only a country heavily reliant on foreign trade exports, but also that the value of its exports is not particularly high. In plain terms, the export volume is substantial, but the profit earned is not significant.
This is because Vietnam lacks the necessary infrastructure and an integrated industrial chain, which means that factories relocated there are, at best, assembly plants. Most products still need to be imported from China, and they merely attach a label, print packaging, and then export to the US and Europe, earning only a meager labor fee.
To illustrate with a simple example, Vietnam's mobile phone manufacturing plants are merely assembly plants, whereas a mobile phone manufacturing plant in China would involve 672 upstream and downstream manufacturers.
Thus, although Vietnam's exports have been setting new records in recent years, they are essentially inflated and lack a solid industrial foundation. The consequence of this is that once the US dollar strengthens and demand from the US and Europe tightens, Vietnam's export-dependent manufacturing industry could collapse completely, even being uprooted.
In other words, even if the US and Europe do not import our country's mobile phones, they still cannot do without our country's liquid crystal displays, touch screens, casings, protective films, internal components, batteries, earphones, chargers, and other accessories, involving approximately 13,000 parts of various sizes. Vietnam, on the other hand, is merely a mobile phone.So, for Vietnam, which heavily relies on exports and lacks an industrial foundation, rapid economic growth is merely a manifestation of seeking quick success, and an economic collapse can be triggered by just a U.S. dollar interest rate hike.
Of course, the global demand contraction and lack of industrial foundation are contributing factors to the sharp decline in Vietnam's exports. With the U.S. dollar's successive interest rate hikes, the withdrawal of foreign capital has further exacerbated the downturn in Vietnam's manufacturing industry, arguably to an even greater extent. With these two fronts attacking simultaneously, it is difficult for Vietnam's manufacturing industry to avoid collapse.
Currently, Vietnam's stock market and real estate market are witnessing a significant exodus of approximately 250 trillion Vietnamese dong from the Vietnamese market. At this juncture, whether it is the stock market or the real estate market, how many manufacturing industries will be implicated?
The cause of this phenomenon lies in Vietnam's monetary policy. Present-day Vietnam closely resembles Japan at the time, as post-war Japan, facing economic depression, was eager for foreign investment, thus making a mistake in the "Mundell-Fleming Impossible Trinity," which led to the collapse of Japan's real estate market and a three-decade economic stagnation.
What is the "Mundell-Fleming Impossible Trinity"? It is a very famous theorem in modern financial theory. In simple terms, it states that a country's monetary policy independence, exchange rate stability, and capital's free mobility cannot coexist simultaneously; at most, only two of these can be chosen. As the saying goes, "one cannot have both fish and bear's paw." Japan at that time adopted the independence of monetary policy and the free mobility of capital, forsaking the policy of exchange rate stability.
Since the free mobility of capital was adopted, the inflow and outflow of capital became very easy. When the U.S. dollar interest rates were lowered, a large amount of hot money flooded in to bottom-fish for assets. Once the U.S. dollar interest rates were raised, a large amount of hot money would quickly withdraw, leading to the collapse of domestic assets and the failure of the manufacturing industry. This was the case with Japan back then, and it is even more so with Vietnam today.
This is truly a case of "one's rise and fall are both due to the same person!"
In conclusion, Vietnam has been copying China's homework, but the results have not been successful. This is because they overlooked the fact that China has a vast domestic demand of 1.4 billion people. Foreign trade exports are just the icing on the cake, but they are by no means the only option.I believe that Vietnam at this moment must also have a deep sense of feeling, that is, in the current international environment, only knowing to seek quick success and instant benefit, and relying solely on the US dollar economy, can only say that it can carry a boat and also overturn it. What do you think?
