Vietnam's Shifting Global Trade Trends: The RCEP Effect

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between 15 Asia-Pacific nations. The participating nations include the ten member states of the Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam – along with five of their key trading partners: Australia, China, Japan, New Zealand, and South Korea. Signed in 2020 and entering into effect in 2022 for most members, it's the world's largest trade bloc by combined GDP, encompassing about 30% of the global population and economic output. RCEP aims to eliminate most tariffs on goods traded between member countries, establish common rules for areas like e-commerce and intellectual property, and boost economic cooperation within the region.

The RCEP is notable for its inclusivity and significance in fostering regional integration, providing member countries with a platform to enhance economic collaboration, strengthen supply chains, and promote sustainable development across diverse sectors. We take a look at Vietnam’s import and export trends with the partner nations before and after the RCEP came into effect.

Vietnam’s Import Trends

With the RCEP partners comprising over 79% of Vietnam’s imports, it represents more than three-quarters of the country’s inward trade. This mostly consisted of China, Japan, South Korea, Thailand, Indonesia, and Malaysia.

Since the inception of the RCEP, the average shipment count has increased from 8.76 million to 9.46 million, and the largest Quarter-on-Quarter rise was in Q4 of 2022 at 23.1%. The Year-on-Year trends show a fall of 10.58% for 2022 and a rise of 16.63% for 2023 in shipment count, while the overall rise stands at 4.3%.

Vietnam’s Export Trends

The RCEP partners accounted for nearly half of exports for Vietnam, at 56.7% of total shipments. The majority of RCEP countries that shipments were exported to were Japan, South Korea, Singapore, China, Thailand, Australia, Malaysia, and Indonesia.

The average shipment count went up from 5.9 million shipments to 6.5 million shipments after the RCEP came into effect, with the biggest spike in Q4 of 2022 at 29.7%. The Year-on-Year shipment count had a fall of 5% in 2022 and a rise of 9% in 2023, with an overall percentage increase of 3.5%.

Conclusion

While the RCEP has had a significant impact on the imports and exports of Vietnam in the year 2023, this could have many positive and negative consequences on the country’s economy. The RCEP promotes gradual tariff elimination on up to 90% of traded goods within the bloc over 15-20 years. This makes Vietnamese exports like electronics, machinery, and textiles more competitive in regional markets. Also, the deeper economic integration will lead to stronger regional supply chains, benefiting Vietnamese manufacturers reliant on imported components such as integrated circuits, machinery equipment, iron and steel, and chemicals. This will also lead to lower prices for consumers due to reduced tariffs and increased competition and trade. Vietnam will also benefit from the increased market access to over 2 billion consumers, offering new opportunities for its businesses. All this can also boost foreign direct investment (FDI), particularly in export-oriented sectors.

On the contrary, tariff reductions also exposed some Vietnamese industries to increased competition from cheaper imports, potentially harming domestic producers. Vietnam is also in a trade deficit with RCEP partners, and this could further increase with time. Certain sectors, particularly those less competitive, could face increasing job losses due to import competition, and require capacity building to adapt to the new trade environment. Overall, RCEP presents a significant opportunity for Vietnam's trade and economic growth. However, realizing these benefits will require addressing potential challenges and ensuring businesses are equipped to navigate the new trade landscape.