How can trade do more for sustainable growth in Vietnam?

Samsung represents a quarter of Vietnam's total merchandise exports.

Why would the role of trade matter? Because trade has been a mainstay and major contributor to the structural transformation and development of the Vietnamese economy in the past two decades, it has helped the transition of Vietnam from an agricultural to a manufacturing and services-based economy. It has brought in FDI and helped create millions of low-skilled jobs that have helped reduce poverty in the country. Vietnam has been such a success story in trading that the value of its merchandise exports is larger than its GDP, and the value of its merchandise trade (exports imports) is double its GDP.

In WB’s opinion, while the success in exporting goods has been a boon for the country in the past two decades, it has also brought challenges. The explosion in exports has been paralleled by an explosion in imports, highlighting the low value-added of Vietnam’s exports. Low value added reflects low productivity, which in turn hampers Vietnam’s transition to a high-income country by 2045, the government’s objective for the country discussed in the new 2021–2030 SEDS.

"The linkages between exporters and domestic firms remain limit ed, both in backward and forward value chains. The diversification of exports is also relatively limit ed in terms of products (with electronics accounting for 60 percent of merchandise exports), of firms (with Samsung representing a quarter of total merchandise exports), and destinations (as the US, China, and Japan account for 3/4 of the country’s trade flows). The automation of manufacturing will erode Vietnam’s main comparative advantage– its cheap labor force. Finally, the county still appears relatively closed to trade in services", WB empharsized.

Another development has emerged as a key determinant of Vietnam’s trade sector- its relationship with the environment and the management of climate change risks. Indeed, the two-decade-long export-driven growth model has affected Vietnam’s environment and is increasingly being challenged as the government has endorsed a shift to a new growth model that is more efficient, greener, and more sustainable. Today, the export sector has an important carbon footprint in the Vietnamese economy due to its reliance on energy-intensive technologies and the use of transportation, which is itself a main contributor to greenhouse gas emissions.

At the same time, global and domestic commitments to reduce greenhouse gas emissions will have an impact on the Vietnamese trade sector, according to the WB. Global climate change and international efforts to mitigate its effects and/or adapt to them are expected to affect both the supply of and demand for Vietnamese exports.

On the supply side, major sectors in Vietnam’s economy, such as manufacturing, agriculture, and transport, have and are expected to be affected by global climate change (such as flooding and tropical storms), changing the composition and value of Vietnamese exports.

On the demand side, Vietnamese exports will likely be subject to new demands by major trading partners and consumers who are increasingly asking for more environmentally conscious production processes and greener goods and services. These global changes and challenges can also be new opportunities for the development of new and greener products.