Frontier emerging markets (FEMs) fell in the fourth quarter after the election of Donald Trump in the US ushered in expectations that tariff hikes on a broad range of imports to the US will lead to inflationary pressure. Vietnam was one of the worst-performing FEMs, for good reason: the US is its largest export market. Its exports to the US account for more than 25% of its GDP, by far the largest percentage among FEMs. Exports to the US don’t account for more than 5% of the GDP in any other FEM country (though the US is the largest export market for the Philippines, which also weighed down FEMs in the fourth quarter).
In fact, Vietnam is the only FEM that has become one of the ten largest trading partners with the US. While there are other EM countries, such as Mexico, Taiwan, and India among the top-ten US trading partners, Vietnam has grown a significant trade surplus with the US, due in part to companies rerouting shipments through the country as supply chains have adjusted over the past several years, especially in the wake of disruptions during the COVID-19 pandemic.
The chart above also shows China’s outsized trade surplus with the US and underscores how global trade has not stopped due to shifts in US policy since the first Trump election in 2016. What has happened is that global trade has evolved over the last eight years, especially with respect to emerging markets, despite tariffs under both the Trump and Biden administrations.
China, one of the primary targets of US tariffs, has simply rerouted its exports. Some of the biggest growth in global trade volumes has come from both the US’s and China’s increase in trade with EMs. Trade between EMs is growing as well. And the current account balances of important export-oriented EMs such as Mexico, Taiwan, South Africa, and Indonesia are significantly better than they were eight years ago, providing these economies with a larger cushion against volatility in global trade. ∎