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Vietnam’s Secret Weapon: Agriculture

In a tricky global economy, Vietnamese exports shrank in 2023, but the rising economic power managed to be one of the only countries to increase merchandise exports to China, thanks to a surprising surge in exports of fruits and vegetables, as well as rice, demonstrating the importance of export diversification.

The Difficulties of 2023

The country of 97.5 million encountered headwinds in 2023. Its gross domestic product rose only 5.1%, below recent trends. In 2022, it had been 8%. Some foreign investors pulled back amid crackdowns on corruption. Vietnam’s imports fell 9.2% to $326.4 billion, an indication of general economic sluggishness.

The Vietnamese export machine, key to the country’s prosperity, closed the year strong. In December, the country’s exports increased 8.1% year-on-year in December to $31.5 billion. However the jump couldn’t save Vietnam’s year. Total exports in 2023 fell 4.6% to $354.7 billion. Exports generated by foreign companies fell 6% in 2023 to $257.2 billion. Vietnam was hurt by the same confluence of forces that damaged trade elsewhere: inflation, weak consumer demand, and regression after a post-Covid boom.

Exporting to Prosperity

The key to Vietnam’s economic growth is its export sector, which is heavily reliant on shipments to two markets, China and the U.S., the world’s top two economies and superpowers keen to forge alliances with Vietnam. Ever since China joined the World Trade Organization in 2001, the U.S. and European Union have salivated about prying open the country’s billion-consumer market. Vietnam is still only the 11th biggest supplier of Chinese imports, but unlike Europe and the U.S., its shipments to China have been rising. In 2023, Vietnamese exports to China increased 5.6% to $61.2 billion, while U.S. exports to China fell 4% and European Union exports rose only 0.4%.

 The Diversification Trick

Vietnam’s trade with the bigger power isn’t concentrated in a few sectors. Exports to China of fruits and vegetables, for example, leapt 138.7% to $3.6 billion in 2023. Exports of computers, electrical products and parts rose 9.8% to $13 billion. And sales of mobile phones ticked up 3.7% to $16.9 billion. To be sure, Vietnamese exports to China of cement, coal, crude oil and wood all fell, but the country isn’t exclusively reliant on a few commodities.

By comparison, in 2023 Vietnamese exports to the U.S. declined 11.3% to $97 billion. Exports of textiles and garments dropped 16.7% to $14.5 billion. Shipments of mobile phones and parts fell 33.5% to $7.9 billion. And sales of machines, equipment and tools fell 9.8% to $18.2 billion. And there was no surge in agricultural exports to make up for the shortfalls. Sales of fruits and vegetables rose 4% to a meager $257.7 million. Exports to the U.S. of Vietnam’s thriving fisheries sectors dropped 26.9% to $1.6 billion.

The Battle for Vietnam

As Vietnam’s economy has matured, it has developed into a strategic economic ally for every economic power in the world. Chinese manufacturers see a ripe consumer market. U.S. industry sees a less fraught low-cost labor market. And everybody else sees a young, dynamic country climbing the rankings of the world’s economies. It’s no surprise that both U.S. president Joe Biden and Chinese leader Xi Jinping visited Vietnam during the second half of the year. It was the only country that both leaders visited in 2023. Everybody wants a piece of Vietnam.

But trade with Vietnam did not fare as well in 2023 as countries had hoped. Exports to the European Union fell 7% to $44 billion, while imports from the EU dropped 4.1% to $15.3 billion. Exports to ASEAN countries dropped 4.5% to $32.6 billion. Imports from ASEAN countries declined 13.5% to $40.9 billion. Exports to the United States dropped 11.3% to $97 billion. Imports from the U.S. fell 4.5% to $13.8 billion. Exports to China rose 5.6% to $61.2 billion. Imports from China fell 6.6% to $110.6 billon. So the only categories to grow in the major trading relationships was exports to China.

Silver Linings

There were a few other bright spots. Exports to India rose 6.8% to $8.5 billion. Total exports of fruits and vegetables increased 66.7% to $5.6 billion, and total rice exports rose 35.3% to $4.7 billion. However, exports of footwear dropped 15.3% to $20.2 billion, and exports of textiles and garments fell 11.4% to $33.3 billion. The government has set a GDP growth target of 6% to 6.5% in 2023. With those traditional sectors dropping off, Vietnam will have to keep diversifying if it wants to meet its target.