Such policies have disturbed and disrupted the existing global order and may potentially lead to non-market trade in the world. In this situation, Vietnam must strengthen its economic autonomy and its position in the international arena to avoid dependence on any superpower in coming times.
New global order
The constant rise and development of information technology has brought the world closer together. Corporations take advantage of differences between countries to reduce production costs. Now trans-national supply chains have been formed and almost no country can segregate itself from the network of cross-border exchanges and transactions, which has many interwoven chain links.
Globalization has changed the status quo of the world, with business decisions based on market economic principles applied on a global scale. An obvious consequence of globalization is that it is difficult to find a product that every person in every country in the world consumes every day that is entirely domestic in its origin. Any stage of cost-cutting measures that do not affect quality, regardless of origin or geographical location, can be applied to help reduce costs of a product.
This is also the rule of market economy that developed countries always use as a guideline and standard in international trade, with price and quality being the key factors determining market share. Countries that want their domestic products to stand firm, including Vietnam, must find solutions to improve quality while keeping prices affordable to retain domestic customers and at the same time promote their products abroad. This can be seen as an order or rule of the game that everyone must follow in the era of globalization, deeper integration, and increasing tight trade relations between countries in the world.
The increasing close link mentioned above has been bringing many benefits to countries, businesses, and people around the world. Vietnam not only exports many products to major economies but also has access to a variety of quality goods and services from abroad to meet the increasing needs and tastes of the people, mostly due to the momentum of global economic development.
However, the interwoven links of the globalized economy also have several shortcomings. No matter how strong the network is, it only takes one link to break to make the whole network collapse or momentarily disrupt. An event or decision unrelated to the economy can have widespread consequences and which are not just confined within a single country.
In recent years the world has been witnessing events that have disrupted the existing order. For instance, to prevent the spread of the Covid-19 pandemic countries had implemented curfews, lockdowns, and social distancing measures. This caused production and business activities around the world to come to a standstill. Passengers and freight transport were also frozen for a while, contributing to a record drop in oil prices at the beginning of the pandemic. Vietnam also suffered serious consequences when a wave of Delta virus variants emerged in 2021, causing heavy damage to the domestic manufacturing and services industries.
More recently, when the Covid-19 pandemic re-emerged on a large scale in China, then Shanghai, China's major trading port, was identified as the epicenter of the new outbreak. The lockdown conditions to curb the spread of the Covid-19 virus caused operations at Shanghai commercial port to become congested, affecting the global supply chain for several big companies such as Tesla and Apple.
The pandemic has also caused countries to desperately try and revive their economies by issuing stimulus packages, increasing money supply, and raising concerns about the risk of inflation rising out of control as the economy recovers. Although the US Central Bank has reassured the public that the inflation will only be temporary, inflation in the US has continued to increase, from 5.4% in September 2021 to 8.5% in March 2022, and showing no signs of regressing.
Besides the drastic effects of the Covid-19 pandemic, the Russia-Ukraine conflict is also threatening the global market economy. The ongoing Russia-Ukraine war has had a significant impact on the world economy. The US and European countries have inflicted several severe and large-scale sanctions on Russia, from economic and trade to cultural and sports, to isolate Russia in the international arena. This includes freezing the accounts of Russian organizations and individuals operating in the developed countries. This makes it impossible for Russian companies to collect and use foreign currency profits from businesses in those countries, including income from gas exports to European countries.
Many countries even joined the embargo and excluded Russia from the SWIFT global payment system, as an enhanced measure to isolate Russia financially. At the same time, the above countries also sought to limit the use of fuel from Russia, including a complete ban on crude oil imports. To deal with this situation, Russia decided to change the currency of payment for gas to the Russian Rubble and apply it to neutral countries. Russia now plans to stop supplying gas to countries that do not agree with its war policy.
The instability caused by the Russia-Ukraine conflict, plus other punitive policies, which by many assessments are more political than nationalistic of Western countries have caused a chain of events that has caused oil prices to rise sharply. Energy price pressure has had a significant impact on the lives of people in embargo countries, especially European countries, which rely heavily on cheap energy imported from Russia.
In addition to energy, the Russia-Ukraine war has also led to food shortages, not only because Ukraine is considered the breadbasket of Europe, but also because of the import and export bans between Russia and the embargo countries. These bans include agricultural products, agricultural machinery, fertilizers, and general agricultural production, leading to a serious shortage of input materials for food processing.
While the economies of European countries are facing difficulties due to the Covid-19 pandemic, the governments of these countries are pioneering embargo against Russia. According to Bloomberg statistics, up to the time of writing, EU countries embargo was for 490 Russian objects, while the US had only 118. Restrictions and bans on trade with Russia have created a shortage of energy as well as food, contributing to more severe inflation.
Measures to isolate Russia financially have also caused the citizens of the countries participating in the embargo to suffer because they cannot do business with Russia. Such developments and consequences occurred from the fact that the market was distorted due to embargo policies. In other words, this situation could have been avoided if politicians had been more subtle as this crisis was entirely man-made. This situation has distorted international trade, disturbed the world order, and created non-market trade conditions.
Vietnam must adapt
Vietnam will have to adapt to survive the current situation. If Vietnam continues to pursue a multilateral foreign policy, increase economic and trade cooperation with countries around the world than this could benefit Vietnam a great deal. However, to persist in following on these lines, Vietnam must have internal economic resources, strengthen Vietnam's position in the international arena, and avoid dependency on any superpower. To have economic strength, we cannot just focus on easy money areas like the stock market or real estate, which present a lot of negative problems and in essence, do not create additional material wealth.
Vietnam needs to focus more on manufacturing industries, which can then create material wealth for its people. This will create more real value, increase internal resources, and strengthen the country's economy. A country that only relies on money creating more money to increase its GDP and is unable to produce tangible materials of its own, will fall into a severe crisis of scarcity when something goes wrong.
In the context of world instability, slow globalization, and the emergence of a new world order, Vietnam needs to focus on economic self-reliance to maintain a strong position in the international arena.