Vietnam has choices in the face of new global trends
This has led to a new consensus of different developing economies on the need to reduce dependence on a single source and improve integration between different countries.
However, the process of reducing dependency has led to rising inflation, labor shortages, increased regional protectionism and fluctuating shocks in the global financial world. In such an unpredictable world trade scenario, it would be surprising if countries like Vietnam participated in a monetary system that would be chosen for a global trade chain.
New global trends
It was not until the 19th century that global integration began to develop. However, this trend towards globalization eventually waned and collapsed during World War I, and was followed by post-war protectionism, the Great Depression, and finally the long and brutal World War II. When World War II ended in the mid-1940s, the United States led efforts to restore international trade and investment under several established basic rules. Western elitist groups came to believe that increased trade would be the most conducive way to bring about peace between nations.
Thus, the process of globalization has fostered economic growth and prosperity. Figure 1 below shows that the trend towards globalization has fostered both growth and economic openness in the G7 countries and has played a leading role in the globalization process. However, this process of globalization has been on the decline since the global financial crisis of 2007. The share of trade in global GDP began to decline after 2007, as evidenced by the drop in China’s export-to-GDP ratio of 16 percentage points . In 2007, China’s export-to-GDP ratio was 35.43%, and had fallen to 18.5% in 2020. Today, even global value chains have stopped growing and are just moving Between the countries.
Today, global trade is relegated to the background while national goals are promoted to the fore and given the highest priority, especially in the areas of public health and national security. While the objective of globalization is to realize the comparative advantage of a country, the development of globalization creates another principle which is to promote the economic growth of a nation, by stimulating the economy to produce what the richer nations need. This results in a conflict between intervention policies.
Today, with the rise of China as a geopolitical rival and the sudden and harsh impact of the Russian-Ukrainian conflict, the United States has chosen national security over the interests of international economic cooperation. This exposes global trade to two scenarios. The first is the worst and least desirable scenario of the 1930s when a country or a group of countries withdraws from the production process. The second, likely possibility is that geopolitical supremacy will endure, meaning that trade wars and economic sanctions will become a dominant feature of future global trade and finance.
Choice for Vietnam
The first scenario of world trade will create huge economic losses as the great powers control the situation in managing conflicts. Vietnam should therefore consider a second scenario. Accordingly, Vietnam must balance national interests with the demands of globalization.
This means that Vietnam should take advantage of the change in the supply chain to attract more investment, promote economic growth from export activities and accordingly approach the production of goods according to the needs of developed economies. With this strategy, it is inevitable that the negative effects of global business activities imposed by large economies will manifest themselves. Therefore, the management of relations with the major countries of world trade is very important in the strategy of market diversification. This is the first step to create a balance in international trade between economies to avoid the damage caused by unilateral sanctions.
One of the four causes of the decline in world trade (Dani Rodrik, 2022), is the problem of the redistribution of income from the benefits of globalization (Anthea Roberts, Nicolas Lamp, 2021). An important lesson in economic theory is that trade benefits countries when distributive relationships are resolved. One of the saviors of Vietnam’s economy after the fourth wave of the Covid-19 pandemic has been export business. From September 2021 to present, the trade surplus has improved, but it remains to be seen whether this area will be supported by the post-pandemic economic recovery or by the banks’ monetary policy expansion.