GLOBAL POLITICAL RISKS AND THE OPPORTUNITIES, CHALLENGES FOR VIETNAM’S ECONOMY
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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
..........*** ..........
MASTER THESIS
GLOBAL POLITICAL RISKS AND THE
OPPORTUNITIES, CHALLENGES FOR VIETNAM’S
ECONOMY
Specialization: International Trade Policy and Law
DUONG THI THU PHUONG
Hanoi - 2023
2. Dịch vụ viết thuê luận án tiến sĩ, luận văn thạc sĩ, chuyên đề khóa luận tốt nghiệp
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Dịch vụ viết thuê luận án tiến sĩ, luận văn thạc sĩ, chuyên đề khóa luận tốt nghiệp
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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
GLOBAL POLITICAL RISKS AND THE
OPPORTUNITIES, CHALLENGES FOR VIETNAM’S
ECONOMY
Major: International Economics
Specialization: International Trade Policy and Law
Code: 8310106
Fullname: Duong Thi Thu Phuong
Supervisor: Assoc.Prof.Dr Dao Ngoc Tien
Hanoi - 2023
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STATEMENT OF ORIGINAL AUTHORSHIP
I certify that I am the only author of this master’s thesis and that all
information and findings presented herein are accurate.
In addition, I guarantee that all references to implementation aids in the
master’s thesis have appropriately identified their origins.
Hanoi, 08 September 2023
Author
Duong Thi Thu Phuong
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ACKNOWLEDGEMENT
First and foremost, I would like to express my deepest appreciation to my
supervisor, Assoc.Prof.Dr Dao Ngoc Tien for his unwavering encouragement and
insightful guidance during the writing of my master’s thesis. During the past five
months, I could complete my thesis excellently thanks to his fascinating guidance
and suggestions.
In addition to my advisor, I want to express my gratitude to all of the
professors, lecturers as well as assistants at Foreign Trade University, particularly
those in the Master Program of International Trade Policy and Law (MITPL), who
invested so much of themselves in teaching us. The knowledge I have gained
through this process will not only help me finish my thesis, but will also give me
the self-assurance I need to further my profession in the real world.
I also want to give a shout out to the people closest to me - my family, friends,
and classmates - for all the love and support they showed me while I wrote one of
the most significant pieces of my life.
Author
Duong Thi Thu Phuong
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TABLE OF CONTENTS
STATEMENT OF ORIGINAL AUTHORSHIP ................................................... i
ACKNOWLEDGEMENT....................................................................................... ii
LISTS OF ABBREVIATIONS ................................................................................v
LIST OF FIGURES ................................................................................................ vi
LIST OF TABLES ................................................................................................. vii
ABSTRACT........................................................................................................... viii
INTRODUCTION.....................................................................................................1
1. The significance of thesis ...........................................................................................1
2. Literature review........................................................................................................2
3. Research purpose and research questions..............................................................5
4. Scope of the research..................................................................................................5
5. Research methodology...............................................................................................6
6. Structure of the thesis ................................................................................................6
CHAPTER 1: THEORETICAL ISSUES AND CURRENT GLOBAL POLITICAL
RISKS..........................................................................................................................8
1.1. Some theoretical issues ...........................................................................................8
1.1.1. Definition of risk........................................................................................8
1.1.2. Overview of political risk...........................................................................9
1.2. The current global political risks........................................................................16
1.2.1. The Russia-Ukraine conflict...................................................................17
1.2.2. The US-China relation’s tension............................................................25
CHAPTER 2: THE INFLUENCE OF GLOBAL POLITICAL RISK ON THE
WORLD AND VIETNAM’S ECONOMY ...........................................................34
2.1. The influence of the current global political issues on the world economy..34
2.1.1. The influence of the Russia-Ukraine conflict on the world economy...34
2.1.2. The influence of the US-China trade war on the world economy.........39
2.2. The influence of the current global political issues in Vietnam’s economy .44
2.2.1. The influence of the Russia-Ukraine conflict in Vietnam’s economy..44
2.2.2. The influence of the US-China trade war in Vietnam’s economy ........51
2.3. General review .......................................................................................................56
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CHAPTER 3: THE OPPORTUNITIES, CHALLENGES AND
RECOMMENDATIONS FOR VIETNAM’S ECONOMY..............................58
3.1. The Vietnam’s Foreign policy and political risk index ...................................58
3.2. The opportunities for Vietnam’s economy in the global political risks........61
3.2.1. The opportunities for Vietnam’s trade sector.........................................61
3.2.2. The opportunities for Vietnam’s investment sector ...............................64
3.3. The challenges for Vietnam’s economy in the global political risks .............66
3.3.1. The challenges for Vietnam’s trade sector.............................................66
3.3.2. The challenges for Vietnam’s investment sector....................................68
3.4. Recommendations for Vietnam’s economy in the context of global political
risks.................................................................................................................................69
3.4.1. Recommendations for Vietnamese government.....................................70
3.4.2. Recommendations for Vietnamese enterprises ......................................72
CONCLUSION........................................................................................................74
SCIENTIFIC RESEARCH .................................................................................... ix
REFERENCES..........................................................................................................x
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LISTS OF ABBREVIATIONS
AI Artificial Intelligence
CPI Consumer Price Index
DPR and LPR Donetsk People’s Republic Luhansk People’s Republic
EU The European Union
ICRG International Country Risk Guide
IMF International Monetary Fund
MNEs Multinational Enterprises
NATO The North Atlantic Treaty Organization
OECD Organization for Economic Co-operation and Development
SWIFT Society for Worldwide Interbank Financial Telecommunications
UK The United Kingdom
US The United States
FDI Foreign Direct Investment
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LIST OF FIGURES
Figure 2.1: Gas consumption in the EU....................................................................35
Figure 2.2: The EU’s diversification away from Russian gas ..................................36
Figure 2.3: Commodity prices have diverged recently.............................................37
Figure2.4: The inflation in the world from 2021, projections for 2025....................38
Figure 2.5: Global growth has lost momentum.........................................................41
Figure 2.6: Global trade growth has slowed .............................................................42
Figure 2.7: Weaker investment has contributed to the trade slowdown...................43
Figure 2.8: Moderate headline inflation is expected to persist in many advanced and
emerging-market economies .....................................................................................43
Figure 2.9: Export - Import turnover between Vietnam and Russia from 2019 to
2022...........................................................................................................................45
Figure 2.10: Export - Import turnover between Vietnam and Russia in months of
2022...........................................................................................................................46
Figure 2.11: Export - Import turnover between Vietnam and Ukraine from 2019 to
2022...........................................................................................................................47
Figure 2.12: Export - Import turnover between Vietnam and Ukraine in months of
2022...........................................................................................................................48
Figure 2.13: The US general imports from Vietnam, by major industry or
commodity sectors, 2015-19 (million dollars)..........................................................51
Figure 2.14: The US total exports to Vietnam, by major industry/commodity
sectors, 2015-19 (million dollars) .............................................................................52
Figure 2.15: Vietnam’s import and export with China (Unit: Million USD) ...........54
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LIST OF TABLES
Table 2.1: Global growth is projected to slow further ..............................................34
Table 2.2: Global growth remains weak ...................................................................40
Table 2.3: U.S. general imports from Vietnam by industry/commodity sectors,
2015-19 (million dollars) ..........................................................................................51
Table 2.4: U.S. total exports to Vietnam by industry/commodity sectors, 2015-19
(million dollars).........................................................................................................53
Table 3.1: EU open-door commitments for Vietnam’s agricultural commodity
groups........................................................................................................................62
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ABSTRACT
Nowadays, tension between great powers is increasing, leading to the
unpredictable change of policy to the rest of the world. Therefore, global political
risk is one of the most serious risks which has a significant influence on a country’s
economy, causing instable business environment for enterprises. Especially, for
Vietnam, it is a small country, relatively dependent on the big countries’ economy
due to the regionally and globally deep integration.
The Master thesis with topic “Global political risks and the opportunities,
challenges for Vietnam’s economy” concentrates on analyzing the two biggest
global political risks which are the Russia-Ukraine conflict and the US-China
relation’s tension because the events are happening and these countries have close
relations with Vietnam in many different aspects such as: military, politics,
especially economics.
The Russia-Ukraine conflict has happened more than one year since 2022,
causing serious consequences to the world’s economy including: the decrease of the
global growth, higher inflation, energy crisis and supply chain disruption. The US-
China relation’s tension has significantly escalated from the US president Donald
Trump imposed a high tax on Chinese export products, leading to the trade war
between two countries. Similarly, the trade war caused some impacts on global
economy, especially for trade and investment.
All both risks have direct and indirect influence on Vietnam’s economy in
some main sector such as: trade, foreign investment, supply chain disruption. When
the Russia-Ukraine happened, declining trade turnover as well as investment’s
stagnation between Vietnam and two countries due to payment, shipping
difficulties. Whereas, for the US-China trade war, Vietnam can get some benefits in
a short time such as: increasing trade to both countries, attracting more foreign
investment.
In general, Vietnam’s economy can not only get the good opportunities but
also face some challenges from the global political risks. Therefore, from the
analysis, the author also gives some recommendations for both Vietnam’s
government and enterprises to seize the chances as well as overcome the
difficulties.
Key word: Global political risk, Russia-Ukraine conflict, the US-China trade
war, Vietnam’s economy.
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INTRODUCTION
1. The significance of thesis
Ever since the end of the Second World War, political risk has played a major
role in global trade. Even while the political situation may change substantially in
some regions, several difficulties have been rather constant over this time and might
be seen as “background noise” at the global level.
The world’s political environment has also seen major shifts in the last several
decades. Since 2018, increases in tariffs are the most visible of the several
restrictive measures the United States and China have implemented on trade flows
between the two nations. After the United States raised duties on Chinese imports,
China retaliated by increasing levies on American goods. Although the trade battle
seemed to grow in the Fall of 2019 with additional tariff increases, a ceasefire was
reached between the two nations at the end of 2019, with some previously
announced tariff hikes being canceled and other earlier increases being rolled back.
The so-called Phase One Agreement was signed in January of 2020 as a result of the
ceasefire. However, the global economy has seen a succession of trade
confrontations between China and the US. Moreover, the trade war is not only an
economic matter, but also relates to the political one when President Donald
Trump’s strategic plan is to “Make America great again”. Moreover, this is a
competition between two largest economic countries to lead the world.
Besides, the Russia-Ukraine conflict on February 24, 2022 was a watershed
moment that reversed the post-Covid-19 global economic recovery. This event
caused Western countries and the United States to experience a sharp slowdown in
economic growth, inflation to escalate, poverty and food insecurity to worsen,
globalization to collapse, and environmental degradation to accelerate. The
International Monetary Fund (IMF) predicted a slowdown in global growth from
6.2% in 2021 to 3.4% in 2022 and 2.9% in 2023 in the World Economic Outlook
Update (WEO) report for January 2023. Almost all other estimates for global
growth in 2023 are relatively pessimistic as the likelihood of economic recession
and financial instability is significant.
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Nowadays, with the complexity of international relationships, political risk is
becoming an important factor having considerable impacts on economic aspects in a
country. According to Eurasia group’s global political risk report, they pointed out
10 risks which have huge impacts on the globe including the Russia-Ukraine
conflict, the US-China relation issue which are considered as the highest political
risks, including: Rogue Russia, Maximum Xi, Weapons of mass disruption,
Inflation shockwaves, Iran in a corner, Energy crunch, Arrested global
development, Divided states of America, Tik tok boom, Water stress.
In Vietnam, globalization is gaining momentum, and the country is becoming
more integrated regionally and internationally. The process of Vietnam’s
international integration into the current global framework is now being
aggressively undertaken. Moreover, Vietnam is a small country whose economy is
relatively dependent on other countries. Therefore, in the complicated context
among nations, researching global political risk is extremely necessary. Thus, the
author chooses the thesis topic “Global political risks and the opportunities,
challenges for Vietnam’s economy” in order to look at these shifts and make some
predictions about how countries have altered the character of political risk in the
present and the future; find out opportunities as well as give some recommendations
to overcome challenges for Vietnam’s economy. However, in the thesis, the author
only focuses on analyzing the two biggest political risks which are the Russia-
Ukraine conflict and the US-China relations tension because they have a significant
influence on Vietnam’s economy.
2. Literature review
“Political risk” has still been one of the concerning topics for researchers so
far which has considerable impacts on a country’s economy in general and
enterprise’s business activities in particular. Many studies have contributed to the
definition, the forecasting, and assessment of political risk.
The following definitions were established in an effort to categorize the many
"technical" interpretations that have been connected to political risk throughout
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time: Firstly, political risk is considered as non-economic risk (Ciarrapico 1984,
Meyer 1985); Secondly, political risk is unwanted government interference with
enterprise operations (Aliber 1975, Eiteman and Stonehill 1973, Henisz and Zelner
2010); Thirdly, the likelihood that political forces or events would interrupt MNE
operations is known as political risk (Root 1972, Jodice 1984, Brewers 1981, MIGA
2010); Fourthly, risks in the business environment caused by changes in
government policy and their possible impact on a company’s the profits or the goals
are known as political risk. (Thunell 1977, Robock 1971, Micallef 1982); Fifthly,
political risk as the host country’s political volatility and potential for extreme
political change (Green 1974, Thunell 1977).
Besides, political risk is also studied in some countries such as: China, the US,
Russia. In Political Risk Index: Spring/Summer 2023, the report analyse patterns in
the world’s most vulnerable countries. In each country, the report will score
different types of risk in the country including: Expropriation Risk, Political
Violence Risk, Terrorism Risk, Exchange Transfer and Trade Sanctions Risk,
Sovereign Default Risk. Stevens, C. E., Xie, E., & Peng, M. W. (2016) looked at the
domestic and international political risk faced by Google and Yahoo as a result of
their operations in China to demonstrate the value of a rounded approach to political
risk. Sachs, T., Tiong, R., & Qing Wang, S. (2007) studied rankings of political risk
factors in China and Asian countries as well as rankings of these countries in terms
of the risk categories and rankings of future PPP opportunities over time. In
“Political risk for foreign firms in Russia” of Liuhto, K. (2010), the author
discussed foreign companies have political dangers in Russia. Risks vary a great
deal between the industries such as: Telecommunications, Oil and natural gas,
Metals and mining, Electricity, Forestry.
Moreover, there are some researches on the relationship between political risk
in some fields. In terms of Foreign Direct Investment, Khan, M. M., & Akbar, M. I.
(2013) studied “The Impact of Political Risk on Foreign Direct Investment”,
pointing out that like other forms of risk, political risk is harmful to economies.
However, Political risk has not been examined as thoroughly as other types of risk,
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such as economic and financial risk, partly due to a lack of data. Krifa-Schneider,
H., & Matei, I. (2010) conducted a study titled “Business climate, political risk and
FDI in developing countries: Evidence from panel data”. The study supposed that
when political risk decreases, foreign direct investment (FDI) inflows increase.
Besides, Tallman, S. B. (1988) researched “Home country political risk and foreign
direct investment in the United States” by using investment data from the US
Department of Commerce. The findings show that the ICs’ investment activity in
the United States is affected by the political and economic climate in their home
countries.
In terms of International Business, Kettis, M. (2004) studied “The Challenge
of Political Risk: Exploring the political risk management of Swedsih multinational
corporations’’. This research pointed out the challenges that multinational
corporations face throughout the country’s risk process and gave some
recommendations for improving practice. Keillor, B. D., Wilkinson, T. J., & Owens,
D. (2005) carried out a study with topic “Threats to international operations: dealing
with political risk at the firm level”. This study’s findings provide support to the
idea that the nature of the political action undertaken by businesses will vary
according to the nature of the political danger they are experiencing.
There are a lot of studies relating to political risk in Foreign Direct Investment,
International Business, Marketing. Although in the current global conflict context,
politics is one of important factors affecting a country’s economy, there is still
limited research related to global political risk and their influences on Vietnam’s
economy. Therefore, in the thesis, the author will find out some main current global
political risks and from the analysis point out some opportunities as well as
challenges for the economy in Vietnam. Besides, the author also gives some
suggestions about policies for the government and solutions for enterprises to tackle
the issues.
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3. Research purpose and research questions
There are two main purposes when the author decides to conduct the thesis.
Firstly, the research aims to identify opportunities and challenges for Vietnam’s
economy in the complicated context of international relations among countries .
Secondly, the researh aims to give some recommendations for both government and
enterprises to overcome the challenges to boost economy. To achieve these
purposes, the thesis has to answer the following questions:
1. What are the main global political risks?
2. What are opportunities and challenges for Vietnam’s economy?
3. What are recommendations to overcome the challenges?
4. Scope of the research
In the thesis, the author focuses on finding about the two biggest political risks
which are the Russia-Ukraine conflict and the tension of the US-China relation
because the risks have significant influences on Vietnam’s economy. Therefore, to
research “Global political risks and the opportunities, challenges for Vietnam’s
economy”, the thesis’s content is divided into two important parts including: the
situation of global political risks’ influence on Vietnam’s economy and the
opportunities, challenges for Vietnam’s economy in the future.
In the first part, the author will study the influence of the Russia-Ukraine
conflict and the US-China trade war on Vietnam’s economy from 2018 to 2023 in
which the US-China trade war is mainly studied from 2018 to 2019 due to the fact
that the US-China Economic and Trade Agreement (Phase One) as well as the
Covid 19 pandemic in early 2020 deceased the trade war’s impacts. For the Russia-
Ukraine conflict, the author will find out its influence on Vietnam’s economy
between 2022 and 2023 when the conflict is still happening.
In the second part, from the data and analysis of the first part, the author will
give some opportunities and challenges for Vietnam’s economy by 2030. The
National Security Strategy 2022 pointed out that “This decade will be decisive, in
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setting the terms of our competition with the PRC1
, managing the acute threat posed
by Russia, and in our efforts to deal with shared challenges, particularly climate
change, pandemics, and economic turbulence”. The author believes that the stage
from now to 2030 is extremely important with changes of countries’ policies to
boost their influence regionally and globally. Therefore, it is necessary for Vietnam
to identify opportunities, challenges to improve its economy in this vital stage.
5. Research methodology
During the research process of this thesis, the author used different research
methods, including: collection, review, synthesis, description, comparison, analysis
of data and information.
Firstly, in terms of data collection, the data will be collected via desk research
from a diversity of different sources such as: books, paper magazines, reports,
websites, etc. Particularly, when the author studies chapter 1, the auhtor will read
books, articles to learn about definitions, theories related to global political risks.
However, when the author collects data related to chapter 2 and chapter 3, the
author will more focus on reports of prestigious institutions such as: IMF, OECD,
General Department of Vietnam Customs... The organizations can provide a lot of
data which is updated regularly and reliably. Secondly, with regard to data
processing and analysis, after collecting data, the author will synthesize the data and
then classify it for suitable chapters. Based on the data, the author will analyze,
compare the matters including: the influence of global political risk on the world
and Vietnam’s economy, opportunities as well as challenges for Vietnam’s
economy in the global political risks and finally give some recommendations for
Vietnam’s economy.
6. Structure of the thesis
Depart from the introduction, reference document, conclusion and limitations
and future research. This thesis contains three chapters:
Chapter 1: Theoretical issues and current global political risks
1
People's Republic of China
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Chapter 2: The influence of global political risks on the world and Vietnam’s
economy
Chapter 3: Opportunities, challenges and recommendations for Vietnam
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CHAPTER 1: THEORETICAL ISSUES AND CURRENT GLOBAL POLITICAL
RISKS
1.1. Some theoretical issues
1.1.1. Definition of risk
Risk is difficult to define, and its quantification is fraught with controversy
because in every field, there will be different definitions. Moreover, different
organizations and authorities also use different definitions. For example, according
to Cambridge Dictionary, risk is the possibility of something terrible happening.
The term “risk” refers to the apprehension of potential adverse outcomes associated
with an action that might compromise anything of value to people (such as their
health, well-being, money, property, or the environment) 2
. Moreover, The
International Organization for Standardization’s risk definition for a consistent
framework across applications is “effect of uncertainty on objectives”3
. In terms of
finance, US Securities and Exchange Commission defined risk associated with an
investment is the possibility of a negative return on that investment. When
investors’ exposure to risk increases, they often demand larger returns in exchange
for that exposure.
There are lots of additional relevant risk definitions, such as:
- “Source of harm”. The term “risk” was first used as a synonym for the far
older word “hazard”, which meant a possible source of harm. This meaning was the
primary one used in the first (1914) and second (1989) editions of the Oxford
English Dictionary. It was taken from Blount’s “Glossographia” (1661). The phrase
“unwanted events” or "something bad that might happen" has been replaced by its
modern counterpart.
- “Uncertainty about loss”. The source of this definition is from Willett’s
“Economic Theory of Risk and Insurance”, published in 1901. This establishes a
connection between “risk” and “uncertainty”, a more comprehensive concept than
either “chance” or “probability”.
2
Society for Risk Analysis. Retrieved 04 May 2023
3
Guide 73:2009 Risk Management - Vocabulary
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- “Consequences and associated uncertainty”. This idea came from Kaplan and
Garrick’s (1981) research. Bayesian analysis, which views risk as the combination
of occurrences and uncertainty about them, favors this definition.
- “Uncertain events affecting objectives”. The Association for Project
Management adopted this definition in 1997. After some minor rephrasing, it was
eventually included as the definition in ISO Guide 73.
- “Uncertainty of outcome”. The Cabinet Office in the United Kingdom (2002)
decided to adopt this concept in order to foster innovation and enhance public
services. It opened the door for the concept of “risk” to refer to either the “positive
opportunity or negative threat of actions and events”.
In conclusion, business, economics, the environment, finance, information
technology, healthcare, insurance, safety, security, and other fields all have their
own unique ways of thinking about and dealing with risk, assessing risk, describing
risk, and even defining risk.
1.1.2. Overview of political risk
1.1.2.1 Definition and historical evidence of political risk
It is possible to identify many distinct technical interpretations that have
evolved to describe political risk throughout time:
The first definition is representative of an early stage when companies and
banks started to tackle the issue of evaluating risks that did not fit neatly into the
categories of traditional business hazards or could not be assessed by looking just at
a country’s economic fundamentals. Kobrin (1979) points out that the second
definition is rather limiting since it presupposes that government interference is
inevitably detrimental; in other words, that host government limitations on FDI
imply economic inefficiency.
The third definition is the most semantically exact since it correctly analyzes
political risk not only in terms of events but also in terms of the possibility of
occurrences (damaging to an MNE’s operations), rather than just the events
themselves. By reducing political risk to a collection of “events” with potential
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consequences for a company, without considering the importance of probability,
one runs the danger of acting like the proverbial idiot who, when a finger is pointed
towards the moon, just stares at the finger. The very nature of calculating political
risk necessitates an eye into the future, and despite the lack of any immediate
threats, a company may nonetheless see political risk as being rather high.
The definitions in the fourth group are more general since they include the
whole business community rather than just one company. A deeper examination at
Robock’s (1971) important definition is warranted. When political upheaval causes
(1) unexpected changes in the economic environment, (2) such changes are difficult
to predict, and (3) the outcome is political risk. These changes in the external
environment pose a threat if they have the ability to adversely influence the success
of a company’s operations.
The fifth set of definitions, which builds on previous research on political
transformation, was written by academics with the goal of bridging the gap between
political science and business studies. Green’s work (Green, 1972, 1974) is the first
to examine the connection between political regime and political risk.
More often than in the past, corporate or governmental organizations are
tasked with conceptualizing and assessing political risk. In conclusion, political risk
can be understood as the possibility that an investment’s profitability will be
negatively impacted by events attributable to either unexpectedly negative shifts in
the domestic or international political arena (such as revolutions, even when linked
to democratization processes, or the outbreak of tribal/ethnic conflict) or to
governmental policy choices affecting an international investor’s property rights.
Both scenarios need for a thorough risk assessment that takes into account the
interplay between local political regimes and global influences. The second section,
in particular, needs further investigation into its function and implementation.
1.1.2.2. Political risk rating
Since 1984, the Political Risk Services (PRS) Group has maintained the ICRG
(International Country Risk Guide) Researcher Dataset, which includes 22 factors
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that anticipate three types of risk (political, financial, and economic). Information
about the political, financial, and economic climates are collected, and then risk
assessments are made. The dataset offers yearly averages of the factors that make
up the International Country Risk Guide’s (ICRG) Risk Ratings.
The purpose of a country’s political risk rating is to help local and foreign
investors make informed decisions about whether or not to do business there based
on the country’s perceived level of political stability. According to the International
Country Risk Guide (ICRG), the following 12 macro-assessments is used to
calculate political risk, including:
• governance stability
• socioeconomic conditions
• investment profile
• external conflict
• internal conflict
• corruption
• law and order
• military in politics
• religious tensions
• ethnic tensions
• democratic accountability
• bureaucracy quality.
Each of the aforementioned 12 factors is allocated a certain number of “risk
points”, with zero being the lowest possible risk point total and the highest possible
risk point total depending on the set weight that factor is given in the overall
political risk assessment. A higher risk point total indicates less political instability
in a nation, whereas a lower total indicates more stability.
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To further understand the primary features of the ICRG political risk
components, we have further subdivided them into subcomponents. They are:
• Government stability (12 points)
- government unity
- legislative strength
- popular support
The government’s capacity to remain in power and implement its platform are
both factors in this evaluation. The total risk rating is based on a combination of
three factors, each of which may get a maximum of four points and a minimum of
zero. extremely low danger is indicated by a score of 12 points, while extremely
high risk is indicated by a score of zero. Governance, government unity, the
proximity of recent and potential future elections, legislative and executive branch
control, and citizen support of government programs are all factors evaluated in this
part of political risk.
• Socioeconomic conditions (12 Points)
- unemployment
- consumer confidence
- poverty levels
This is an evaluation of the socioeconomic influences at work in society that
may limit government action or fuel societal unhappiness, and it is an effort to
gauge popular contentment or displeasure with the government’s economic policies.
As public discontent with a government’s policies grows, so does the likelihood that
it will be pushed to alter those policies and approaches, which might have negative
consequences for businesses. The ICRG model takes into account not just
unemployment, consumer confidence, and poverty but also infant mortality,
medical care, and housing and credit availability.
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• Investment profile (12 points)
- contract viability
- profits repatriation
- payment delays
To gauge a government’s disposition toward foreign investment, the ICRG
evaluates four subcomponents: contract viability/expropriation, profits repatriation,
and payment delays. These factors affect investment risk but are not accounted for
in other political, economic, or financial risk components.
• Internal conflict (12 Points)
- civil war
- terrorism
- civil disorder
This analysis considers the influence of political violence on a country’s
government. Countries with no armed or civil resistance to the government and no
arbitrary violence committed by the government against its own people get the
highest ranking. There is the greatest potential for widespread internal conflict in
Egypt following the military’s July 2013 intervention against the country’s
democratically elected government, despite the fact that this action was justified due
to popular pressure for the army to intervene.
• External conflict (12 points)
- war
- cross-border conflict
- foreign pressures
This metric is used to evaluate the danger posed to the current government and
foreign investment by external action, whether peaceful (diplomatic pressures, aid
cuts, trade restrictions, territorial disputes, sanctions, etc.) or violent (cross-border
conflicts, all-out war). Many negative effects on international commerce may result
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from war, including operational limitations, trade and investment bans, economic
resource distortions and reallocations, and even violent shifts in social order.
• Corruption (6 points)
This analysis considers the problem of corruption in government. Corruption
of this kind poses several risks to both local and international investment. It
introduces inherent instability into the political system, creating mistrust between
those in authority and those they govern, and it distorts the economic and financial
environment.
• Law and Order (6 Points)
Each facet of safety and security is graded independently, with a total possible
score between 0 and 3. The law component evaluates the fairness and rigor of the
judicial system, while the order component evaluates the degree to which the
general populace obeys the law. Thus, a nation with a good rating (3) in its legal
system might have a poor rating (1) if it has a high crime rate or if the law is
regularly disregarded without a meaningful penalty by the state.
• Military in Politics (6 Points)
Military engagement in politics, especially at the local level, reduces
democratic responsibility since the military is not elected by the people. The riskiest
scenario is a full-scale military dictatorship, although in the near term, such a
regime may bring about new stability, making it less dangerous for businesses to
operate. Long-term, however, the danger will almost surely increase if the military
continues to dominate, in part because the system of military control would become
corrupt. This is because such a regime is likely to develop an armed opposition.
When the military threatens to take over a country, the elected government may be
forced to shift course or be overthrown in favor of a more pliable administration.
• Religious Tensions (6 Points)
This might be the result of one religious group’s dominance in politics and
society, with the goal of replacing civil law with religious law and shutting out all
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other faiths and sects. This might be due to a desire for religious extremism or the
need for a religious minority to assert its independence from the majority in the
nation. Unskilled leaders imposing bad policies or even civil war is a real possibility
in such settings.
• Ethnic Tensions (6 Points)
This measure of political risk looks at how tense things are between different
groups in a country because of differences in race, ethnicity, or language. Countries
with considerable racial and national conflicts get worse marks because members of
competing groups are often intolerant and reluctant to compromise. Despite the
persistence of variations, nations with lower levels of tension get higher rankings.
• Democratic Accountability (6 Points)
According to this metric, the less responsive a government is to its people, the
more likely it is that the government will fall, either peacefully in a democratic
society or violently in a nondemocratic society, as demonstrated by the overthrow
of the Morsi government in Egypt in July 2013 via a military intervention following
massive antigovernment demonstrations.
• Bureaucracy Quality (4 Points)
When governments change, the strength and quality of bureaucracy acts as a
shock absorber, keeping policy disruption to a minimum. Points are awarded to
nations when the bureaucracy is competent enough to manage without making
significant policy changes or disrupting government services. The bureaucracy in
these safe nations is usually well-trained and hired without much interference from
the government. Low marks are given to nations where the transition from one
government to another is difficult in terms of policy making and running the
government day-to-day.
1.1.2.3. Global political risk
With globalization, a global business faces danger in any country in which it
has operations or supply lines. A corporation must consequently be aware of global
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risk, including the global regulatory environment as well as broad regional risk
patterns, global challenges that reach across all or many countries. From the
perspective of corporate planning, especially in terms of growth and market
expansion, a holistic view of global political risk can be invaluable in assessing
opportunities and striking a balance between the full set of geographic growth
opportunities ranging from low-risk/low-expected returns, to high-risk/high-
expected returns. Informed planners often study a global map, comparing their ideas
to what they know or suspect is occurring in various regions of the globe.
1.2. The current global political risks
Currently, with the complicated relations among countries, there are many
political risks in a country, in a region as well as on a global level. However, the
part only concentrates on studying two biggest global political risks which
influenced significantly on Vietnam’s economy, analyzed in the next chapter.
Firstly, the Russia-Ukraine conflict
The conflict has huge impacts on not only Russia and Ukraine but also on the
globe in many aspects from geopolitics, military to economy. This is a seriously
armed conflict, having a great influence because it is related to many other countries
in the world. As the conflict in Ukraine erupted, the confrontation between Russia
and the West intensified. Russia became the nation with the most sanctions in
history due to the US and the European Union (EU).
Secondly, the US-China relation’s tension
Both the US and China are one of the most important import - export market
of Vietnam. According to Vietnam Import - Export Report 2022 by Ministry of
Industry and Trade, Vietnam’s overall import and export volume with China
reached $175.6 billion in 2022. Vietnam’s exports to China were 57.7 billion USD,
an increase of 3.2% from 2021, accounting for 15.5% of Vietnam’s total export
revenue. Vietnam’s imports from China were 117.9 billion USD, an increase of
6.6% from 2021, occupying 32.8% of Vietnam’s overall import revenue.
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In 2022, the US and Vietnam’s bilateral commerce will have a total value of
around $123.9 billion. In which Vietnam imports from the US reached close to
$14.5 billion, down 5.2%, accounting for 4% of the overall import of the nation;
exports to the US reached $109.4 billion, up 13.6% compared to 2021, standing for
29.5% of total exports of Vietnam.
1.2.1. The Russia-Ukraine conflict
1.2.1.1. The reason of the Russia-Ukraine conflict
In terms of the historical context, when Russia and Ukraine were members of
Soviet Union, officially the Union of Soviet Socialist Republics (USSR), they had a
close relationship, however, after the collapse of Soviet Union in 1991, all member
states split off and declared independence, since then, the relationship of two
countries has experienced periods of both cooperation and tension.
Ukraine has an important geographical location to Russia which is considered
as a “buffer state” between Russia and the NATO bloc - The North Atlantic Treaty
Organization. After World War II, the United States and the Soviet Union turned to
confrontation due to the opposition of goals and strategies between the two power
countries. To isolate Soviet Union and Socialist countries, a military organization
called NATO was formed by the US and Western countries in 1949. In response to
the NATO bloc, the Soviet Union also formed a political and military alliance
known as The Warsaw Treaty Organization (The Warsaw Pact) in 1955. Both blocs
concentrated on arms races, equipped with modern weapons, especially nuclear
weapons, to strengthen their bloc’s strength. After the dissolution of the Soviet
Union, The Warsaw Pact officially disbanded, however, NATO not only still exists,
but also increasingly expands to the east, threatening Russia’s security. Therefore, if
Ukraine takes the side of Russia, Ukraine will be a shield to protect Russia from
NATO countries, contrariwise, if Ukraine takes the side of Western countries and
let the NATO army station on the buffer state, this will be a threat to Russia’s
security.
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In fact, the Ukrainian split into two factions, one flavored to Russia and
another flavored to the Western. In 2013, Ukraine’s president, Viktor Yanukovych
refused to sign a trade agreement which could bring Ukraine closer to Europe. This
led to a protest made by the EU-favored Ukrainians, pushed Yanukovych out of
office, and elected a government that favored Europe rather than Russia.
This made Putin worried that Ukraine would take part in a military alliance
with the US and Europe that would threaten Russia. Therefore, in 2014, Russia took
over an area in southern Ukraine called Crimea which Crimea was a part of Russia
from 1783 to 1954 because in 1954 Soviet leader Nikita Khrushchev gave Crimea
to Ukrainian Soviet Socialist Republic as a gift to commemorate the 300th
anniversary of Ukraine signing The Pereyaslav treaty, unification with the tsarist
regime.
Tensions escalated between Russia and Ukraine when fighting between
Russian-supported separatists and Ukrainian government forces continued until
2015, a peace agreement, Minsk Agreements, between Russia and Ukraine was
signed. However, the tensions continuously have increased in recent years when
Ukraine is becoming closer and closer to the US and EU countries. The conflict
between the Ukrainian government and the Russian-backed separatists in Donbass
(including DPR and LPR) increased, making peace negotiations under the Minsk
Agreement 2, the unique solution to the Ukrainian political crisis, difficult to
achieve.
Therefore, in the early morning of February 24, 2022, Vladimir Putin,
president of Russia, stated that he would begin a special military operation to
defend civilians in the Donbas area. In a short time, Russian soldiers had invaded
Ukraine in a specific military operation to “demilitarize” the nation.
1.2.1.2. The current situation of the Russia-Ukraine conflict
It has been more than one year since Russia invaded Ukraine, despite all the
diplomatic efforts of the two countries and the international community, the conflict
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situation continued to evolve fiercely and tumultuously. However, neither side has
achieved absolute superiority.
Over the past year, both sides have made several changes to their military plan
including both the methods and scopes in actual combat. Russia has shifted its focus
of warfare from the capital Kiev in the North to the Donbas area and the Southeast
coastline corridor and has basically controlled and annexed four Ukrainian
territories into Russia (Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts).
Meanwhile, after the success of the counteroffensive, which saw it retake some
territory, the Ukrainians were in a holding posture.
Ukraine has fought back bravely thus far, demonstrating its tenacity step by
step, and has garnered widespread support and encouragement from the Western
countries and the US. However, Ukraine sustained significant and lasting losses: (i)
temporary loss of control over 20% of its territory due to Russian annexation,
interference, and binding, and deep US/Western dominance in both the military and
political spheres 4
; (ii) severe damage to Ukraine’s economy, with the overall
economy contracting by more than 30.4% in 2022 and the minimum cost to repair
the damage caused by the conflict estimated at around 411 billion USD5
; and (iii)
Ukrainian defense sector suffered heavy losses, relying heavily on Western military
help. Meanwhile, Russia has shown that it can stand on its own; Russian internal
affairs are largely stable, displaying solidity and high unity on decisions related to
or affected by the Ukraine issue; the economic damage to Russia was much less
severe than predicted by the US and Western nations; and the Russian economy is
not “broken” as a result of the succession of sanctions and embargoes. Russia was
an expression of its determination on matters of strategic security via the campaign;
it aimed to delay or halt Ukraine’s entry into NATO for the time being.
Russia and Ukraine’s negotiation efforts have stalled, and international
mediation isn’t seen as a realistic option because: (i) the perspectives of the two
sides are still very different, (ii) both sides believe they can resolve the conflict
4
Office of High Commissioner for Human Rights
5
World Bank (WB), European Commission (EC)
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militarily or try to win a military victory to create an advantage before entering
negotiations, (iii) the US and Western nations interfere and dominate, and (iv)
internal pressures of both countries make compromise difficult. The international
community’s attempts at mediation to facilitate prisoner swaps and export deals for
grain and fertilizer have had minimal success. Nonetheless, the parties will soon
have to contemplate a solution to the stalemate on the battlefield in light of the
tremendous damage done to both sides and the bad effects on the globe, therefore,
the sooner the better, the political solution can be considered to halt the fighting.
1.2.1.3. The impacts of the Russia-Ukraine conflict in Geopolitics
The Russia-Ukraine conflict is a geopolitically important event which has
considerable impacts on global security as well as becoming a factor to make
changes of countries power. This is not only a military conflict between two
countries but also with intervention and support from many other countries. In
addition, this is a total war including not only military activities but also economics,
diplomacy, energy, media issues. Even though the US or the Western countries take
advantage of Ukraine to deal with Russia via economic transactions.
Shaping the Multipolar World
With global tensions and confrontations rising as a result of the Russia-
Ukraine conflict, several nations have sought to build new alliances, with the United
States and China at the heart.
The situation in Ukraine has shown the realities of a multipolar world and the
decline of a US-centered international order. The United States and its NATO allies
are on one side, while Russia is on the other. China, however, backs Moscow. The
Eurasian Economic Union (EAEU), the Belt and Road Initiative (BRI), and the
Shanghai Cooperation Organization (SCO) are all pillars of the Eastern political and
economic pole that the two non-Western powers are constructing. The fact that
global powerhouse China has Moscow’s back gives Russia even more motivation to
defend its stance on Ukraine. The United States and its allies don’t face it alone.
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The Russia-US-China relations
- The Russia-US relations
Since Russia’s invasion of Ukraine, ties between Russia and the US have
worsened when the US supports Ukraine. Leaders in the United States and its allies
view Russia’s invasion as an illegal and savage war of aggression on the border of
NATO that, if successful, would lead to the subjugation of millions of Ukrainians,
fuel Russian President Vladimir Putin’s revanchist goals, and encourage similar
aggression from other rival powers, particularly China. Therefore, the US and its
allies always look for ways to assist Ukraine.
The German think tank Kiel Institute for the World Economy estimates that
the Biden administration and the US Congress have given Ukraine about $76.8
billion in humanitarian, financial, and military aid since the conflict broke out6
.
Moreover, The United States has imposed unprecedented sanctions affecting a wide
range of actors and industries in response to Russia’s war in 2022 against Ukraine,
targeting four main areas: (i) financial - monetary; (ii) energy; (iii) transportation;
and (iv) some other areas. Accordingly, the subjects to sanctions include: (i)
Russian organizations such as banks and enterprises; (ii) individuals, Russian elites
(Government leaders, businessmen, politicians...). In addition, some of Russia’s
allies are also subject to sanctions. As a result of the sanctions, about $300 billion in
Central Bank of Russia assets have been blocked by the EU and the US (with
allies), limiting the bank’s capacity to aid the conflict effort or cushion the effects of
sanctions. Additionally, Russia’s banking industry is losing hundreds of billions of
dollars and foreign investment has mostly stopped flowing into the country7
.
- The Russia-China relations
Since Russia invaded Ukraine, Russia and China’s relationship has been
strengthened by the stresses of political isolation, national security, and economic
growth due to the US and its alliances. Russian President Vladimir Putin said that
6
Bilateral aid to Ukraine from January 24, 2022 to February 24, 2023
7
European Parliamentary Research Service
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bilateral comprehensive collaboration and strategic cooperation between the two
countries is at “the highest level in history”.
However, this partnership is based on mutual self-interest and is characterized
by its pragmatic nature. This partnership positions both nations to balance the US
influence in the Asia-Pacific region. In addition, China successfully exploits Russia’s
resource advantages with cheap energy, China also benefits from weapons contracts
with Russia to modernize its weapons. Russia also finds an alternative market to the
EU China’s vast investment funds and takes advantage of China’s abundant
investment capital to develop the country in difficult times due to sanctions from the
West.
The impacts on EU
The battle presents the EU with a chance to prove it can play a significant role
and a challenge that will force it to rely on the US. However, it is true that the EU is
becoming more and more reliable in the US.
Firstly, the European Union’s continued reliance on NATO and the US in
particular is exacerbated by the fact that it must divert its whole attention to
assisting Ukraine. Actually, throughout the conflict, European nations not only
backed Ukraine economically, but also militarily, which depleted strategic arsenals
and weakened the alliance’s joint defensive strength. As a result, EU countries are
forced to get their military hardware from elsewhere, with the United States
emerging as the dominant provider. Some estimates put the income from the sale of
the US weapons and equipment in 2022 at over 205 billion USD, up 49% from this
year8
.
Secondly, Russia’s decision to halt gas and oil supplies to Europe presents a
significant opportunity for the liquefied petroleum gas (LNG) sector in the US. The
US and the EU implemented several sanctions, including price controls on Russian
oil, in an effort to cut Russia off from the rest of the world. Because of this, Europe
faces a critical shortage of energy, and the European Union will need to locate
8
The figure was from Reuters on Jan 25 2023, said by the U.S. State Department
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energy supplies in other nations in order to lessen its reliance on Russia. The United
States now dominates the Russian oil market, leaving Europe in its dust, therefore
this is a great chance for American companies to establish themselves as key
suppliers to the European Union.
1.2.1.4. Scenarios of the Russia-Ukraine conflict
The Ukraine conflict will shape Russia-West relations. Thus, three options
must be considered: a victory for Ukraine, a victory for Russia, and a protracted
stalemate.
Scenarios 1: A Ukrainian victory
There is no one agreed-upon definition of success for the Ukrainians. The fact
that Moscow hasn’t been able to reintegrate Ukraine into its Russkiy Mir (Russian
World) yet may be considered as a success for Ukrainian bravery and the country’s
devotion to freedom and independence. It will be a long path to complete
restoration and reconciliation, both domestically and most surely with Russia and
the Russian people, no matter the result of this conflict.
There are a number of paths forward that might lead to the restoration of
territorial integrity. If Ukraine were to achieve total victory, Russian soldiers and
occupation could be forced to withdraw from all of the territory that Moscow has
claimed to "forever" occupy, including Crimea. The alternative is for Ukraine to
regain control of the areas of the Donbas that Russia has occupied since 2014 and
which were recently declared independent by Moscow. These areas include the so-
called Donetsk and Luhansk People’s Republics.
The destiny of the existing government in Moscow, or the consequence of a
regime change in Moscow, will determine the future of ties between Russia and the
West in the event of a Ukrainian triumph. The possibility of a revanchist
administration cannot be ruled out, especially if the country experiences broad
instability due to separatist movements ranging from the North Caucasus to
ethnically defined entities in Siberia. The West should respond by trying to keep the
unrest inside Russia’s present boundaries. The only way to prevent a revanchist
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administration in Moscow from regaining its military might and restarting the
conflict is to prevent it from regaining its military strength in the first place. A
positive relationship with Russia would be unlikely under these circumstances
because domestic issues would detract from foreign policy efforts. Reestablishing
ties with Europe and the West may take a back seat to Moscow’s relationship with
Beijing.
Scenarios 2: A Russian victory
After the recent effective counter-offensives by the Ukrainians, the idea of a
Russian triumph can only be depicted as an implausible result under the current
conditions. At an earlier point, Putin might have framed a partial annexation as a
win, but today, such a scenario is only possible if the West entirely ceases its
support for Ukraine.
In the event of a Russian triumph, the quasi-independent Ukrainian state
would be reduced to a rump state under Moscow’s control, with Kiev being
compelled to accept the annexation of the so-called Novorossiya region’s old tsarist
provinces. In a similar vein, a Russian victory could lead to a more autonomous
remnant of Ukraine, which would have lost roughly 20% of its territory to Russia on
a permanent basis and would be economically dependent on the West and
institutions like the EU and international financial institutions. Despite the
impossibility of joining NATO, the surviving parts of Ukraine might still look to
their western allies for security assurances against any additional territorial
incursion by Russia.
If Russia were to win in Ukraine, it would use the triumph to make larger
claims and demands about how European security should be rewritten to fit
Moscow’s preferences. Moscow seeks a full withdrawal of NATO to its pre-1997
positions, as stated in its recommendations to the US and NATO in December 2021.
This would essentially put all of Central and Eastern Europe at the whim of the
Kremlin, since there would be no NATO commitments to safeguard their
sovereignty and territorial integrity. The independence of non-NATO nations in the
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area, including Moldova and Georgia, would be at risk if Russia were to win in
Ukraine. Thus, it is essential that such a scenario be avoided. The conflict in
Ukraine is, as many European politicians have said, also our conflict.
The longer term effects of Russia’s economic and financial isolation,
particularly in its dealings with the West, are uncertain. As time goes on and the
true repercussions of Moscow’s actions become obvious, it’s improbable that
support for the Kremlin can be retained for the longer term, despite the initial
excitement of portions of the populace. It may still be essential in such a case to
tighten domestic repression and further isolate the nation from the rest of the world.
Russia’s reliance on China would grow, making it an even subordinate partner to
China.
Scenarios 3: Stalemate
If the conflict drags on, both sides will need to be able to keep up their
military efforts and prevent the other from making significant gains on the
battlefield if the combat is to have any chance of success. Preventing a Russian
breakthrough or further escalation into a direct NATO-Russia confrontation (with or
without the deployment of nuclear weapons) and maintaining the Ukrainian
economy would both be greatly aided by Western cooperation.
1.2.2. The US-China relation’s tension
1.2.2.1. The reason of the tension between the US and China
The bilateral relationship between the United States and China is one of the
most significant and contentious in the world. Since 1949, there have been times of
conflict and collaboration between the two nations over trade, climate change, and
Taiwan.
However, tension escalated between the US and China when 45th
US
president, Donald Trump, considered China as “competitor” and imposed high taxes
on China’s products, leading to trade war in 2018. Starting with the main underlying
reason, the US and China trade war was the result of significantly increasing
conflict between two powerful countries which have the highest economies. As the
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US’s economy has considerably declined in recent years and China has signaled its
desire to take over as the world’s preeminent power, rivalry between the nations has
heated up.
In addition, there were some direct reasons to explain why the trade war
happened. They include:
Firstly, the US trade deficit with China is getting higher
In 2017, the US imported 505 billion USD worth of products from China (US
Census Bureau -Imports), while it exported items to China for only about $129
billion. Thus, the trade deficit of the US and China has reached 375 billion USD
(US Census Bureau - Exports).
Secondly, in terms of Donald Trump’s policy, during the presidential time,
Trump implemented a trade protectionism policy aiming to improve the
development of domestic industries to “make America great again”. The policy
caused not only the trade war with China, but also the trade conflict with some
countries considered as the US allies such as: EU, Japan, Canada.
Thirdly, the ambition of China is to become the most technologically advanced
country in the world.
To achieve its goal of becoming a globally advanced economy that doesn’t
have to rely on importing key technologies from major competitors, China is
currently pouring billions of dollars into the “Made in China 2025” program to spur
the growth of key technology industries like robotics, AI, aerospace, EVs, and 5G
Internet.
Although China’s ambition is great, its technological level is still limited. To
implement the “Made in China 2025” strategy, Chinese companies must rely on
core technologies from the US. Therefore, in order to carry out the “Made in China
2025” plan, Chinese businesses must depend on core technologies from the US.
The US claims that Chinese joint venture partners are coercing the US
businesses into transferring their technology. China strongly refutes this claim. The
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US, however, also claimed that China was attempting to acquire the US technology
via means like technology imports and technology theft. Another method used by
large Chinese companies (ZTE, Huawei, China Mobile) to acquire cutting-edge
American technology is through mergers and acquisitions with the US firms.
1.2.2.2. The current situation of the US-China relations
Nowadays, international relations are moving to a new stage with a prominent
feature of competition between great powers, especially between the US and China.
In terms of the US
In 2020, when Joe Biden was elected president, tensions between the US and
China increased more than in the past. In the first year in office, President Biden has
taken a series of tough measures and policies for dealing with China. In the National
Security Strategy published in 2021, the US considered China as a formidable rival
in all fields, continuing to identify threats as China becomes more aggressive. Thus,
in the eight foreign policy orientations, the US prioritized restoring relations with its
allies and partners to solve the US “greatest geopolitical challenge in the 21st
century”, which is relations with China. The US also emphasized the point of view:
“Our relationship with China will be competitive when it should be, collaborative
when it can be, and adversarial when it must be”.9
In National Security Strategy 2022, America’s first strategic priority is to win
the competition with China and suppress Russia. The US regards China and Russia
as its most significant concerns. China is the biggest geopolitical challenge, which
is the only country intending to reshape international order by increasing their
influence on economics, military, and technology. It is also said that in the
competition with China, the next ten years will be the decisive decade. According to
the US National Defense Strategy (NDS-2022), America’s main rivals are China
and Russia. However, China is America’s only real long-term one. Therefore, the
US efforts to “prevent the enemies from attacking” will include simultaneous
9
A Foreign Policy for the American People, MARCH 3, 2021, https://www.state.gov/a-foreign-policy-for-
the-american-people/
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deployment of military force, application of economic and political pressure, and
increased coordination with a network of allies and partners.
According to the China Military Power Report in 2022, the US supposed that
the People’s Liberation Army (PLA) is increasingly making efforts to modernize
and improve its level and combat readiness to have can conduct ground, air, and sea
operations, as well as nuclear, space, electronic, and cyber warfare. In particular, the
US noted China’s efforts to increase its global influence and military presence.
In terms of China
The issue of Taiwan (China) has persisted in the bilateral relationship between
the United States and China ever since normalization of ties. The US strengthens
Taiwan’s political, economic and military security role in long-term competitive
strategy with China and the US global strategy.
While the US-China strategic conflict has reached a comprehensive and
strategic depth, the status of Taiwan remains a “thorny issue” in bilateral ties, as the
Chinese Communist Party’s 20th National Congress noted. Moreover, the US
policy has shifted from “priority to counter-terrorism” to “strategic competition
with major powers”, which identifies China and Russia as rivals. Therefore, China
considers handling relations with the US as a key issue in its foreign policy;
deploying comprehensive competition with the US and gathering forces;
tenaciously protecting the nation’s core interests, and drawing “red lines” on the
diplomatic front, one of which is the Taiwan issue.
In general, the tension of the US-China relations originates from competitions
about economics, politics and military to become the ruler of the world. The US is a
superpower in the world. While the US wants to protect its superpower, China is
threatening the US position by expanding its impact on economics, politics, and the
military.
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1.2.2.3. The impacts of the US-China relations in Geopolitics
Indo - Pacific Strategy
A world of sophisticated and unexpected fluctuations is the result of
geostrategic conflict between great powers, notably in the areas of economics,
politics, and military. The Indo-Pacific region has gradually become the focus of the
world on both geostrategic and economic security in recent years. Many nations,
including superpowers like the US and China, EU, India have shifted their foreign
policy priorities to this area in an effort to better compete and expand their influence
there.
Firstly, in terms of the Quadrilateral Security Dialogue, the alliance involves
four countries: the US, Japan, India, and Australia which is one of the primary
pillars to actualize the connectivity plan between the two coasts in the Indo-Pacific
area. The purpose of the alliance is to share common interests, values and
perceptions of security threats among the four countries in order to create a balance
of power which facilitates the maintenance of a “rules-based” order in the Indo-
Pacific region.
The US will work with its alliances and partners, as well as regional
institutions, to achieve five goals in the Indo-Pacific.
- Advance a free and open Indo-Pacific
- Build connections within and beyond the region
- Drive regional prosperity
- Bolster Indo-Pacific security
- Build regional resilience to transnational threats
Secondly, in terms of the military alliance AUKUS, it includes three countries:
Australia, the UK and the US, announced on the 15th of September, 2021. The new
security cooperation agreement will increase exchange of information and
technology; facilitate integration of security and defense-related research,
technology, industrial bases, and supply chains.
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The AUKUS program’s initial endeavor is a promise to help the Australian
government pay for nuclear-powered submarines for the Royal Australian Navy.
The second one is to improve joint capabilities and interoperability which
concentrate on cyber capabilities, quantum technologies, artificial intelligence,
and new subsea capabilities.
The Middle East
The Middle East is a region inside the US sphere of influence, and it has
longstanding, strong links with the country. At the Gulf Cooperation Council
summit in Jeddah, Saudi Arabia, President Joe Biden declared to the leaders of
Middle Eastern countries that the US “will not walk away and leave a vacuum to be
filled by China, Russia or Iran”. In National Security Strategy 2022, it is said that
steps that may promote the US interests and enable regional partners establish the
groundwork for greater security, prosperity, and opportunity for people in the
Middle East and the American people should be prioritized at this time. In the
meantime, China published the “Report on China-Arab Cooperation in the New
Era” in December 2022, outlining the comprehensive, multi-level, and broad
cooperation model between the two sides with the goal of jointly building a “China-
Arab Community with a Shared Future” in the new era. This publication is seen as
marking the beginning of a new era in China’s relations with this region. Chinese
President Xi Jinping’s trip to the Middle East in December 2022 is seen as a
significant step forward for China in the area.
The Africa
In Africa, the Russian-Ukraine military conflict has caused Western countries to
reconsider their foreign policies and pay attention to Africa from the perspective of
energy, diplomacy, ideology... become the center of power competition between
major powers, especially between the US and China. In National Security Strategy
2022, the US’s policy suggested that Africa’s governments, institutions, and people
“be a major geopolitical force” addressing global issues in the next decade. The Joint
Statement at the US-Africa Summit in December 2022 reaffirmed their commitment
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to growing their alliance and enhancing their long-term, considered as one of the
efforts of President Joe Biden’s administration to renew and strengthen relations with
African countries. Meanwhile, China’s political and economic influence in Africa is
expanding. China has been able to strengthen its position on the African continent
thanks to the Forum on China-Africa Cooperation (FOCAC), which has drawn the
involvement of most of the region’s governments. Moreover, China-Africa
cooperation under the “Belt and Road Initiative” (BRI) has also made significant
progress.
1.2.2.4. Scenarios of the US-China relations
The economic and political relationship between the United States and China
is at an all-time low, and the disagreements between the two countries are
escalating. As a result, experts are warning that the US and China might fall into the
Thucydides trap, which would lead to the beginning of a new cold war and the
reversal of globalization.
The term “Thucydides trap” refers to a theory that suggests the outbreak of
war is an inevitable consequence whenever a new center of power arises with the
potential to displace the existing one. The strategy known as the “Thucydides Trap”
was given its name after the ancient Greek historian Thucydides. Thucydides was
present during the conflict that pitted the young city-state of Athens against the
established empire of Sparta. This conflict was one of the contributing factors that
led to the downfall of the Ancient Greek Civilization, and both sides paid a very
high price on many fronts as a result. According to Thucydides, the growth of
Athens and the anxiety it produced in Sparta were the two factors that led to the
inevitability of war.
Scenarios 1: The US and China is caught in the Thucydides trap
A full-scale cold war, or even a hot war or proxy wars, is possible if the
United States and China’s divergent interests are not managed properly, as
evidenced by the US drastic containment of China’s development and China’s
aggressive projection of power in Asia and in the globe. The “Thucydides Trap”
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that the US and China find themselves in at the turn of the 21st century is a threat to
the whole global community. A reversal of globalization, or at least a division of the
global economy into two irreconcilable economic blocs, might be set off by the cold
war between the United States and China. Both scenarios will have far-reaching
effects on the free flow of commodities, services, capital, labor, technology, and
data.
China and the US both want the rest of the world to choose a side in this
global conflict, but most nations will want to find a middle ground so they can keep
trade and diplomatic ties open with both powers. There are now far more US friends
and partners with commercial and investment ties to China than there are in the US
itself.
China and the US both want the rest of the world to choose a side in this
global conflict, but most nations will want to find a middle ground so they can
keep trade and diplomatic ties open with both powers. There are now far more
US friends and partners with commercial and investment ties to China than there
are in the US itself.
In the new economic system, however, where China and the US maintain
distinct control over future-shaping technologies like Artificial Intelligence (AI) and
5G Technology, it may be challenging to maintain a pivotal position. There is a
possibility that many nations’ timetables are inappropriate. A prolonged reversal of
globalization is possible, and the countries will have to make a choice.
Scenarios 2: The US and China escape the Thucydides trap
Is there a plan B if China’s ascent stalls? There was a lot of discussion about
Japan being the world’s biggest economy in the 1980s and 1990s. A quote from
Senator Paul Tsongas: “The Cold War is over; Japan won” Paul Kennedy, in his book
The Rise and Fall of the Great Powers, expresses concern about imperial overreach by
the United States and predicts the rise of Japan to global prominence. After the onset of
the Asian financial crisis and the Lost Decade, however, such speculation faded away.
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China might experience the same thing. There are major issues happening
inside the nation. Perhaps more alarming is the fact that China has the fastest-aging
population in the world because of its one-child policy. And the Chinese economy
is already going down, so things may be far worse than the official numbers
indicate. When long-term competitiveness is considered, the American economy is
in far better position. Unrivaled: Why America Will Remain the World’s Sole
Superpower, Michael Beckley’s latest book, offers an excellent and unconventional
analysis of America’s continued dominance in the world.
Moreover, there is no chance of China ever being able to militarily compete
with the United States on a global basis, even if it does become the world’s greatest
economy. China has no deployed nuclear weapons, whereas the United States has
1,750, as reported by the Stockholm International Peace Research Institute (SIPRI),
which also reports that China has 280 nuclear weapons while the United States has
6,45010
. In addition, the United States has favorable relations with a number of
major military powers, whereas China has few.
10
“Modernization of Nuclear Weapons Continues; Number of Peacekeepers Declines: New SIPRI Yearbook
Out Now,” Stockholm International Peace Research Institute, June 18, 2018.
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CHAPTER 2: THE INFLUENCE OF GLOBAL POLITICAL RISK ON THE
WORLD AND VIETNAM’S ECONOMY
2.1. The influence of the current global political issues on the world economy
2.1.1. The influence of the Russia-Ukraine conflict on the world economy
Although there are recent signs of improvement, the conflict between Russia
and Ukraine has still had huge impacts on different aspects of the world economy
including economic production and growth, energy crisis, global supply chain
disruption, global inflation and other economic impacts.
The impacts on global economic growth
Table 2.1: Global growth is projected to slow further
Source: OECD Economic Outlook
Projections for the worldwide GDP growth in 2022 are 3.1%, almost half the
pace recorded in 2021 during the comeback from the pandemic, and 2.2% in 2023,
both much lower than the rate anticipated before the conflict. Initial attempts to
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relax policy interest rates in various nations are expected to aid in global growth in
2024, which is estimated to be 2.7%. As a result of predicted stable development in
the main Asian emerging-market countries and dramatic slowdowns in the United
States and Europe, the global outlook is becoming more unbalanced.
Global energy crisis
Russian and Western oil sanctions on each other pose a severe danger to the
international energy market. Consumers and energy-intensive sectors in Europe
have suffered greatly as a result of the economic crisis. In a broader sense, the crisis
has pushed up energy prices worldwide, which has affected economies everywhere
owing to rising input costs for agriculture and industries.
The 27 member states of the European Union used up 412 billion cubic meters
of gas in 2021. Creating electricity, heating homes, and operating factories all rely
heavily on gas. In the European Union, more than 30% of houses are heated by gas.
Figure 2.1: Gas consumption in the EU
Source: Eurostat
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Graph illustrating the EU’s gas consumption patterns. The electricity and heat
generation sector accounts for almost 30%, followed by the households at 24%, the
industrial sector at 22.6%, and the service sector at 10.6%. About 11% of energy
use goes toward other, non-energy uses.
However, in 2021, 83% of the EU’s natural gas supply came from imports and
Russia was one of the most important gas exporters. According to the below figure,
in 2021, the EU depended significantly on Russia’s natural gas supply, importing
above 40% natural gas from the country.
Figure 2.2: The EU’s diversification away from Russian gas
Source: European Commission
However, gas exports to the European Union from Russia have dropped
dramatically as a result of the invasion of Ukraine. Less than a quarter of EU gas
imports between January and November 2022 came from Russia (pipeline gas +
LNG imports). Norway contributed 25%, and Algeria 11%. This shortfall has
mostly been made up for by a dramatic rise in LNG imports, primarily from the
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United States. Excluding Russia, imports of LNG (mostly from the United States,
Qatar, and Nigeria) accounted for 25.7%. Therefore, the EU is looking for
alternative solutions such as renewable energy to reduce its reliance as well as
decrease the greenhouse effect.
Global inflation
Oil, gas, and food costs all rise as a direct result of war. That may add a
considerable amount to monthly outlays for things like mortgage interest,
electricity, and transportation. It also has a trickle-down impact on poor nations that
must rely on energy imports for survival. As a result, even if income levels stay
stable, developing nations will be forced to pay greater costs for energy imports,
which might raise local fuel prices, food prices, and total commodities imports. In
emerging nations, this causes inflation and cost of living increases. Higher global
inflation is possible if the influence is felt in both developed and developing
nations.
Figure 2.3: Commodity prices have diverged recently
Source: Refinitiv; and OECD calculations
Oil, gas, coal, a variety of metals, wheat, maize, and several culinary oils, and
fertilisers all saw sharp increases in price as soon as fighting broke out in Ukraine.
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Although most commodity prices have now dropped, in part owing to low demand
from China, those of globally traded gas and coal continue to be quite high.
Figure 2.4: The inflation in the world from 2021, projections for 202511
Source: IMF staff calculations
According to the figure, it can be seen that the global international headline
inflation (CPI) rose dramatically to 8.7 percent from 2021 to 2022, however, the
figure would fall to 7.0 percent. This prediction is over two times as high as the one
made in January 2022, but only slightly higher than the one predicted in January
2023 (by 0.4 percentage points).
11
Percent; dashed lines from January 2022 WEO Update vintage
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Global Supply Chain Disruption
The invasion had far-reaching consequences for the global economy, shown
in the disruption of worldwide supply chains because both Russia and Ukraine
play crucial roles in the international supply chain. This results in energy supply
shocks and trade shocks, which raise prices for energy, commodities, and food,
contributing to higher inflation throughout the world. As a result of disruptions in
production or distribution caused by sanctions, the availability and cost of
numerous necessities rise and fall. The cost of all of Russia’s “advantageous
goods” has risen dramatically. One-third of the world’s grain exports come from
just two countries: Ukraine and Russia. As a result of the fighting, grain exports
from the two countries have dropped dramatically, leading to increasing
worldwide food prices and particularly hurting economically weaker nations in
Africa. The poor are disproportionately impacted, increasing the possibility for
social upheaval in low- and middle-income nations.
This suggests that geopolitical disputes have far-reaching economic impacts,
and not only on the sanctioned nation itself. The Russia-Ukraine conflict
demonstrated that sanctions on a warring country are not an appropriate solution
because of the disproportionate effect on non-fighting countries. This is particularly
true when the conflicting countries are commercial partners of non-conflicting
countries.
2.1.2. The influence of the US-China trade war on the world economy
The impacts on global growth
Global economy slowed dramatically, and the weakness witnessed in the
second half of 2018, has carried over into the first half of 2019 due to ongoing trade
tensions due to increased policy uncertainty, ongoing trade disputes, and falling
corporate and consumer confidence.
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Table 2.2: Global growth remains weak
Source: OECD Economic Outlook 105 database.
Overall, the real GDP growth in the world in general and in other countries in
particular decreased from 2017 to 2019 except for the figure for the US. In 2017,
the global real GDP growth was 3.7%, however, the figure went down to 3.5% in
2018 and to 3.2 % in 2019. Whereas, the US real GDP growth was 2.2% in 2017,
went up significantly to 2.9% in 2018 before decreasing by 1% in 2019. It can be
seen that the US-China trade war had influences on not only the two countries’
economies but also the global economy.
Moreover, the world real trade growth was at 5.5% in 2017, declining
dramatically to 2.1% in 2019. Since the global financial crisis, this is the weakest
rate.
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Figure 2.5: Global growth has lost momentum
Source: OECD Economic Outlook database; Markit; OECD Main Economic
Indicators database; Refinitiv; and OECD calculations
In terms of Global industry production growth (Panel C), the figure was at
about 4.4 % in the latter half of 2017 and the first quarter of 2018. However, the
global industry production growth decreased constantly from 3.5% in the second
quarter of 2018 to 2,4% in the fourth quarter of 2018. Finally, the figure was at
about 1.7% in the early part of 2019.
With regard to Global retail sales volume growth (Panel D), the figure was at
about 4.4 % in the latter half of 2017. However, the global industry production
growth decreased constantly from 3.9% in the first quarter of 2018 to 3.3% in the
third quarter of 2018. Finally, the figure was at about 2.7% in the fourth quarter of
2018 and in the early part of 2019.
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The impacts on global trade and investment growth
Figure 2.6: Global trade growth has slowed
Source: OECD Economic Outlook 105 database; Markit; Institute of Shipping
Economics and Logistics; International Air Transport Association;and OECD
calculations
Overall, the world trade growth (Panel A) witnessed a significant decline from
around 5.5% in 2017 to about 4.0% in the second quarter of 2018. The figure
continued to go down to 2.5% in the first quarter of 2019. It can be seen that the
container port traffic reached a peak at 7.8% in the third quarter of 2017 before
inclining to 2.7% in 2019. Similarly, the figure for air traffic relatively fluctuated
from around 7.1% in 2017 to 4.3% in 2019. Indicators of container port traffic and
air-freight traffic have declined due to the decrease in global industrial production.
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Figure 2.7: Weaker investment has contributed to the trade slowdown
Source: OECD Economic Outlook 105 database; World Semi-Conductor
Trade Statistics; Bureau of Labor Statistics; and OECD calculations
The increase in trade tensions and policy uncertainty had negatively
influenced investment activities, leading to decreasing investment growth (Panel A)
which has also contributed to the trade slowdown. Annual fixed investment growth
among the G20 nations which current data is available has dropped from over 5% in
2017 to 2.5% by the end of 2018. In the Asian region, there was a dramatic
downturn in the world semi-conductor cycle (Panel B).
The rate of inflation is set to stay low
Figure 2.8: Moderate headline inflation is expected to persist in many
advanced and emerging-market economies
Source: OECD Economic Outlook 105 database; and OECD calculations.
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Headline consumer price inflation is expected to fall to 1.5% in the median
advanced economy in 2019 (due to falling commodity prices) and rise to 2.0 percent
the following year. In the US, where spare capacity is still restricted but growth is
moderating, inflation is forecast to reach 2.25% by the end of 2020. Japan’s
inflation is expected to grow but this will largely reflect the increase in the
consumption tax rate; excluding the impact of the consumption tax increase, the rate
of inflation is predicted to reach just around 1% in 2020. Whereas, in the Euro
region, headline inflation is expected to decrease from 2018 because of weak
aggregate demand pressures as well as lower energy prices, with core inflation at
just below 1.5% by the end of 2020.
2.2. The influence of the current global political issues in Vietnam’s economy
2.2.1. The influence of the Russia-Ukraine conflict in Vietnam’s economy
Due to Vietnam’s high level of economic openness and its rapid process of
global economic integration, Vietnam is very vulnerable to the repercussions of the
Russia-Ukraine conflict. Especially in the context that Vietnam is promoting socio-
economic recovery and development after the Covid-19 pandemic, it is particularly
vulnerable to the knock-on effects of global slowdown, inflation pressure, energy
crisis, and stakeholder policy responses. This complicates economic management,
which has real-world consequences for people’s daily lives, particularly for those
with lower incomes.
2.2.1.1. The influence on Vietnam’s trade sector
Vietnam’s traditional and important Eurasian commercial relationships are
Russia and Ukraine. The conflict between Russia and Ukraine has increased the cost
of raw materials for home manufacturers by driving up the price of oil, natural gas,
and other commodities used in manufacturing throughout the world. Many obstacles
remain in the way of commercial and economic interactions between Vietnam and
the two nations. Vietnam’s production and import-export operations are being
hampered by the unpredictability of the Russia-Ukraine conflict. This conflict has
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already reduced investment, disrupted business, and lowered consumer demand
throughout the world.
Figure 2.9: Export - Import turnover between Vietnam and Russia
from 2019 to 2022
Source: The author’s collection from General Statistics Office of Vietnam
Russia is Vietnam’s main market in the EAEU, accounting for 81% of
Vietnam’s total import and export turnover with the Union12
. According to the
Ministry of Industry and Trade, in 2021, two-way trade between Vietnam and
Russia reached over $5.5 billion, of which Vietnam’s exports to Russia reached
$3.2 billion, increasing by 12.2 %, and imported $2.33 billion from this market,
rising by 16.5% compared to the same period in 2020.
12
Vietnam Import - Export Report 2022