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Vietnam – U.S. Trade Status and Outlook, 2012 – 2015e (@ Nov 25, 2012)

Vietnam - U.S. Trade 2001 - 2015e 1-9/2012 Data

HCM City, Nov 25, 2012. Despite the difficult domestic and international economic environment, Vietnam – U.S. trade in 2012 continued to grow, but at a slower pace than in previous years. Based on nine months data (Jan-Sep) from the U.S. Department of Commerce, bilateral trade may reach $24.5 billion in 2012, a healthy increase of 12% over 2011, when bilateral trade was $21.8 billion. Most noticeably, U.S. imports of apparel from Vietnam may reach only $ 7.5 billion, an small, single-digit increase over the $ 7.2 billion in 2011, and down sharply from the double-digit growth of 2010 and 2011. On the other hand, Vietnam’s exports of higher-value-added products from “modern manufacturing” FDI are increasing sharply.

Total bilateral trade in 2011 was US$ 21.8 billion, up 17.5% over the previous year, with Vietnam’s exports to the U.S. $ 17.5 billion (up 18%), and imports from the U.S. $ 4.3 billion (up 17%), demonstrating once again that manufacturing foreign direct investment (FDI) and trade are strong and stable factors that support Vietnam’s economic and social development.

In comparison, total bilateral trade in 2012 may reach about US$ 24.5 billion (up 12%), with Vietnam’s exports to the U.S. about $ 19.8 billion (up 13%), and imports from the U.S. about $ 4.8 billion (up 9%).

Growth of Vietnam’s apparel exports to the U.S. is likely to continue to slow because of increasing labour costs, increased competition from countries such as India, Indonesia, Bangladesh, and Mexico, not to mention Cambodia and Myanmar, and reduced demand in the United States. The hope for Vietnam is that exports of “modern manufacturing” and services will take up the slack, both in export revenue and employment.

However, lack of trained workers and increasing wage costs without productivity gains in the factories and efficiencies in the economy (transportation infrastructure, customs, business services) that reduce costs may slow the growth of Vietnam’s exports to the U.S. According to the Asian Development Bank, less than 30% of young workers, who comprise half the workforce, have completed upper secondary education.

As for increasing labour costs, the below chart and table show actual minimum wages in vnd/month 2008-2012, proposed minimum wages in 2013, and projected minimum wages in 2014-2017 based on the Party Central Committee Decision 23-KL/TW, May 29, 2012 to “Adjust the minimum wage more rapidly in the private sector so that by 2015 the minimum will reach the level of the Basic Needs Wage.

Vietnam''s Minimum Wage 2008 - 2017 (chart)

Vietnam''s Minimum Wage 2008 - 2015 (table)

U.S. Textiles and Apparel Imports from “2nd Tier Countries”

Vietnam rapidly achieved the status of 2nd-ranked supplier to the U.S. textiles and apparel import market after entry into effect of the Vietnam-U.S. Bilateral Trade Agreement in December 2001 and Vietnam’s entry into WTO in January 2007, more than doubling its exports from about $3 billion in 2005 to over $7 billion in 2011, taking market share mostly from Mexico, it seems. However, Vietnam’s rapid growth of textile and apparel exports to the U.S. market has slowed since 2010 as other “2nd Tier Countries,” such as Indonesia, Indonesia, and Bangladesh, steadily increase their exports, while Mexico seems to have halted and reversed, since 2010, the sharp fall in its exports to the U.S. between 2005 and 2009. However, according to a number of industry experts, India’s infrastructure for garment manufacturing is still not adequate to match its raw material sources, which may be the core of their exports to the U.S. (cotton fiber, cotton yarn, fabric) and India still has much more to do in order to utilize all of their local raw materials, which may be difficult for them to achieve in the next 5 years. Mexico has NAFTA preferential access to the U.S. market.

U.S. Apparel Imports fr 2nd Tier 2005-2015e

Source: Chart created by author, based on data from US Department of Commerce Apparel Imports Data

U.S. Textile and Apparel Imports from China, “2nd Tier Countries,” and “Other Countries”

The below chart shows that a “new normal” may have been achieved after the removal of U.S. apparel import quotas for WTO members in 2005. U.S. apparel imports from “Other Countries” dropped by more than one-third, from $46.5 billion to $30.5 billion between 2005 and 2010; U.S. apparel imports from China nearly doubled from $22.4 billion in 2005 to $40.7 billion; and U.S. apparel imports from “2nd Tier Countries” increased by 37% from $20.3 billion to $27.9 billion in 2011. Since 2010~2011, it seems that a new equilibrium has been reached, with the outlook for China’s apparel exports to the U.S. to decrease slowly over time, as more companies join the “leaving China” movement, while exports from the “2nd Tier Countries” and “Other Countries” increase slowly. Indonesia, where FDI doubled to $20 billion in 2011, Bangladesh, which recently hosted an AmCham Hong Kong apparel sourcing delegation accounting for $5.8 billion/yr, and Myanmar are seen as the most promising FDI destinations for those “leaving China.”

U.S. Apparel Imports 2005-2015e Jan-Sep 2012 data

Source: Chart created by author, based on data from US Department of Commerce Apparel Imports Data

Vietnam’s Higher Value-added Exports from “Modern Manufacturing” FDI

A recent phenomenon in 2012 is the sharp growth in Vietnam’s higher value-added exports from “modern manufacturing” FDI such as the Intel $1 billion assembly and test facility in Saigon Hi-Tech Park, and also FDI by Jabil Circuit, Korea’s Samsung Electronics Co., and Japan’s Nidec, etc. Based on this FDI, Vietnam has increased high-tech exports amid a global slowdown that has damped demand for goods from other Asian nations. Shipments of mobile phones and other electronics from Vietnam surged 91 percent in the first 10 months of the year to $16 billion. Vietnam’s shipments of electrical machinery to the U.S. climbed 58% in the first eight months of 2012, while China’s sales to the U.S. in the category rose 11 percent, Malaysia’s grew 4 percent, Thailand’s slid 5 percent and Indonesia’s fell 16 percent in the period.

Click here to see …

Vietnam – U.S. Trade before BTA, 1996-2000.
Vietnam – U.S. Trade Status and Outlook 2011 – 2020e (Jan 24, 2012)
Vietnam – U.S. Trade Status and Outlook 2011 – 2020e (Jun 26, 2012)

Source of data

US Department of Commerce Trade Data
US Department of Commerce Apparel Imports Date
Vietnam Trade Data: General Statistics Office of Vietnam

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