Asia: South Korea is now Vietnam’s second largest trading partner

For the first time, South Korea has surpassed the ASEAN countries, the European Union and US as the second largest trade partner of Vietnam, with China remaining in first place. The trade value between Vietnam and South Korea reached $29.12 billion which accounted for 14.7% of the total trade value of Vietnam, in the first half of this year. 77% of the trade between South Korea and Vietnam is contributed by the imports from South Korea to Vietnam and in fact, import value has experienced growth at 51.2% year-on-year which made Vietnam’s trade deficit with South Korea even higher than that with China. While this change was expected with the lift of tariffs during the Vietnam-South Korea Free Trade Agreement negotiations to diversify Vietnam’s imports, the change came earlier than expected.

The imported goods are largely made up of equipment, machinery and spare parts used in many South Korean investors’ factories, such as Samsung, for production of export goods in Vietnam. Vietnam’s dependence on importing factors of production was unavoidable as the domestic industries in Vietnam still not sufficiently developed to support export goods production. Hence, it is pertinent for Vietnam to further develop and improve the domestic support industries to reduce dependence on other markets for equipment and materials for production and thereby reduce the country’s trade deficit in the future.

As of 16H1, RFi Group data shows that 90% of Vietnamese companies trade internationally of which 70% are imports from overseas and 69% of the companies have international offices where the top headquarter locations are China, US, Japan and South Korea (Commercial Banking Council, H1 2016). Seeing that majority of the businesses in Vietnam are trading internationally especially in importing goods, further substantiates the need for Vietnam to diversify its imports before it has a well-developed domestic industry to reduce the need for imports. Hence, it is key for Vietnam to capitalise on its existing Free Trade Agreements with other countries to improve its current trade position.

 

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