Vietnam Sees 15TOutflow;U.S.Debt Hits 36T

When discussing global economies, one might instinctively place the United States, the world's most formidable economy, alongside Vietnam, a relatively small player within the ASEAN region. At first glance, it appears the comparison between these two nations holds little value, given the vast differences in their economic landscapes. However, a closer examination reveals an intricate relationship and an emerging narrative where both countries are grappling with significant economic challenges, albeit of different natures. The narrative becomes more complex when we consider that the stakes might be equally high for both nations.

To illustrate, while Vietnam is facing an alarming withdrawal of approximately 16.5 trillion Vietnamese Dong in foreign investments, the United States is contending with a staggering national debt exceeding $36 trillion. The potential ramifications for both economies are significant. In an extreme scenario, Vietnam could slip into an economic recession, yet the economic decline of the U.S. might trigger a global economic crisis, highlighting the interconnectedness of today’s economic landscape.

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Take, for instance, recent trade policies. When former President Trump imposed a 25% tariff on Mexico, Vietnam felt an immediate impact. The unsettling climate for manufacturing in Vietnam grew even more pronounced, with official figures reporting a staggering 12.2% drop in direct foreign investments year-on-year. Furthermore, industry associations confirmed a decrease of 29.8% in total investments from overseas in Vietnam from 2023 to the present date, indicating over 16.5 trillion Vietnamese Dong has exited the country’s markets. But what is at the core of this economic upheaval?

The answer lies in a variety of factors, primarily tied to the shifting political landscape in the U.S. Both local and international analysts have reached a consensus that Vietnam's impressive economic growth over the years has relied heavily on “friendly shore outsourcing” from the U.S. However, this trend has morphed into a near-shore outsourcing strategy, wherein companies are favoring locations closer to home. Consequently, Vietnam's manufacturing sector has been losing substantial orders to nearby nations like Mexico and Canada, as trade volumes between these countries and the U.S. continue to rise.

Despite predictions indicating the U.S. might turn its focus towards Mexico and Canada, Vietnam remains highly dependent on American markets. Remarkably, data from the first three quarters of the year reveals that the U.S. continues to be Vietnam’s largest export market, yielding a trade surplus of nearly $104 billion for Vietnam. This stark reliance highlights Vietnam’s precarious economic situation.

Complicating matters further, Vietnam’s investment environment has not seen meaningful improvements in recent years. Frequent power shortages have plagued the nation, leading to major corporations reevaluating their investments. A recent case in point is Intel's decision to scrap a $3.3 billion investment plan in Vietnam in favor of Poland, marking a significant loss for Vietnam in attracting direct foreign investments.

As foreign capital continues to exit the country, signs of economic decline in Vietnam become more pronounced. However, while Vietnam grapples with these challenges, the U.S. finds itself in a much graver predicament. Just last week, the total U.S. debt officially surpassed the unprecedented level of $36 trillion. Comparing figures, the growth in the U.S. national debt has been rapid; from July's figure of $35 trillion to $36 trillion by late November, the debt surged within a mere span of four months, increasing by over $100 billion daily—a staggering rate.

Looking back, January 2024 saw the debt reach $34 trillion, followed by a nearly $1 trillion increase over the next seven months. This acceleration indicates that the U.S. debt is rising at an increasingly alarming pace, prompting scrutiny of the treasury’s fiscal strategies.

A large part of this debt accumulation can be attributed to policy moves initiated by the Federal Reserve in recent years. The tightening of the monetary policy began in March 2022, and by June of the same year, the Fed started to cut back on its balance sheet, doubling the pace by September. Such measures have inevitably led to higher borrowing costs for the U.S. government, with yields on short- and long-term Treasury bonds skyrocketing, exacerbating the debt service pressure on the U.S. Treasury.

As Treasury Secretary Janet Yellen nears the end of her term, another looming challenge presents itself: the temporary appropriations legislation is set to expire in less than a month. This situation raises pressing questions about how government operations will continue after December 20. Given Trump's recent electoral victories, the Biden administration may face significant hurdles in passing new appropriations, threatening a government shutdown as Trump prepares to assume office once more.

In summary, Vietnam is wrestling with dire challenges in its manufacturing sector, while the U.S. confronts severe predicaments in its financial sector. The once formidable financial prowess of the United States, which has historically served as its backbone, may now become the very factor that leads the nation down the path of decline. This dichotomy reveals the stark realities both nations face in today's intricate economic tapestry.