Thread by @michaelxpettis

1/13
I'm not an expert on the Vietnamese economy, and I welcome any corrections and advice, but I think US concerns about Vietnamese trade imbalances may be substantially overstated.

wsj.com/articles/u-s-t… via @WSJ

2/13
Vietnam has been running a bilateral trade surplus with the US of roughly 20% of its GDP for the past few years, but while this is incredibly high, its trade surplus with the world overall is much lower, roughly 3% of the country's GDP over the past few years.

3/13
Policies or conditions that lead to trade imbalances in any country – the US, Vietnam, or anywhere else – can only be expressed in the overall trade balance, and never in terms of bilateral balances. This has two important implications.

4/13
First, if Hanoi has implemented unfair trade policies, the extent of their "unfairness" will be reflected in its overall trade surplus. The fact that Vietnam may have very high trade surpluses with certain countries but not with...

5/13
others mainly reflects the structure of global trade and Vietnam's place in the value chain. This means that while Hanoi may be implementing mercantilist policies (it almost almost certainly is), these account for only a fraction of Vietnam's enormous surplus with the US.

6/13
Second, if Vietnam responded to pressure from Washington and diverted exports from the US to other countries, while this would undoubtedly cause Vietnam's bilateral surplus with the US to drop, it would have little to no impact on Vietnam's overall surplus, not would...

7/13
it matter to the overall deficit of the US. Any reduction in the overall US deficit would be matched by an increase in the US deficit with the rest of the world. This is because the US trade imbalance reflects the US role in absorbing global savings imbalances.

8/13
A quick glance at Vietnam's economic statistics seems to confirm this. They suggest that Vietnam isn't unbalanced in the way persistent surplus countries – e.g. Japan, China Germany – are.

9/13
Household consumption accounts for 65-69% of Vietnam's GDP, for example, versus less than 40% in China, and 50-55% in Germany and Japan. I am happy to be corrected, but my quick read is that for such a poor country Vietnam's "problem" is probably a too-low investment rate.

10/13
As Matt Klein and I argued in our recent book, trade deficits are not a problem when they are balanced by high domestic investment funded by foreign capital, as was the US case in the 19th Century.

11/13
They are serious problems however when they reflect foreign inflows that drive down domestic savings rather than drive up investment, as has been the US case for several decades. Washington is right to want to address these imbalances forcefully. But it is important that...

12/13
it understand the real sources of the imbalances. Vietnam does ondeed have a savings imbalance (in a well-functioning trade and capital regime, a poor, rapidly-growing economy like Vietnam would be a net importer of capital, not a net exporter) but in the great scheme...

13/13
of things, it is a fairly minor contributor to US imbalances. It's huge bilateral surplus with the US does not reflect its true role in much the same way Mexico's trade surplus with the US does not reflect at all Mexico's role in global imbalances.

carnegieendowment.org/chinafinancial…