The Vietnam trade deficit is not a terrible thing!

The trade deficit exists because Vietnam exports to other countries were only US$43.7 billion while imports from other countries tallied in at US$45.6 billion, according to the GSO best estimates.

Effects of a Trade Deficit

Initially, a trade deficit is not a dreadful thing.

It raises a country's standard of living. Its residents have access to a wider variety of goods and services at a more competitive price. It reduces the threat of inflation, since it creates lower prices.

A trade deficit indicates that the country's residents are feeling confident and wealthy enough to buy more than the country produces.

Contrary to much of the ‘fake news’ that continually circulates in Vietnam— companies that depend on import materials in production to make goods for export do not contribute to the deficit.

They as a matter of fact and simple common sense contribute to either a trade surplus or a reduction of the trade deficit.

To the extent that there are foreign sector companies in Vietnam importing machinery, equipment and other materials that are incorporated into an FDI venture, those costs could add to a trade deficit.

This is because the value of the asset is not offset against the cost of the import.

However, in any thoughtful analysis one should obviously consider that the FDI manufacturing plants being constructed will generate positive exports for many years to come.

Certainly, it is true that trade deficits that result from Vietnamese consumers purchasing foreign goods over extended periods of time could have negative consequences, but this is not the situation in Vietnam.

There simply is no reason for anyone to get analysis paralysis over the trade deficit of Vietnam in the first quarter of the year.

During the first three months of 2017, total export value grew 12.8%, while the total import value had a year-on-year increase of 22.4%.