, MNG4804
ASSIGNMENT 2 2026
DUE 30 AUGUST 2026
Question 1
Adam Smith's Absolute Advantage and the Case of Vietnam: Trade Arrangements and Challenges
with the United States
Introduction
Adam Smith's Theory of Absolute Advantage fundamentally challenged the Mercantilist view that
trade is a zero-sum game, instead demonstrating that nations can mutually benefit by specialising
in products where they possess efficiency advantages (Hill, 2023, p. 167). This essay critically
analyses Vietnam as a case study of a developing country with absolute advantages in certain
sectors, examining the challenges it faces in its trade arrangements with the United States, a
developed nation. While Vietnam has successfully leveraged its absolute advantages in
labour-intensive manufacturing, particularly in textiles, footwear, and electronics assembly, its
trade relationship with the United States reveals significant structural challenges that complicate
the realisation of mutual gains. The analysis proceeds by first examining Vietnam's specific absolute
advantages, then exploring the trade arrangement dynamics with the United States, and finally
critically analysing the challenges that emerge from this asymmetric trading relationship.
Vietnam's Absolute Advantages: Specialisation and Efficiency
Vietnam has developed significant absolute advantages in several manufacturing sectors, primarily
driven by its abundant labour supply, competitive wage structures, and strategic economic reforms.
As Hill (2023, p. 167) explains, a country possesses an absolute advantage when it is more efficient
than any other country at producing a particular product. Vietnam exemplifies this principle in the
textile and garment industry, where it has become one of the world's leading exporters.
The country's comparative efficiency stems from multiple factors. Vietnam offers a young,
educated workforce with competitive wage rates, coupled with substantial foreign direct
investment in manufacturing infrastructure (Doan, 2022). The government's economic
liberalisation policies under the "Đổi Mới" reforms have further enhanced production efficiency by
creating a favourable business environment. Consequently, Vietnam has emerged as a global
manufacturing hub, with exports of textiles and garments reaching approximately $44 billion in
2023, making it the world's third-largest exporter in this sector (Vu & Nguyen, 2023). This
demonstrates Vietnam's clear absolute advantage: it can produce these goods more efficiently
than many developed nations, including the United States, which has largely shifted textile
manufacturing overseas due to higher labour costs.
, Similarly, Vietnam has developed strong absolute advantages in electronics assembly and footwear
production. Major technology companies such as Samsung, LG, and Intel have established
substantial manufacturing operations in Vietnam, capitalising on the country's productivity
advantages (Tran, 2021). These industries illustrate how Vietnam has effectively harnessed its
factor endowments to achieve production efficiency that surpasses that of many developed
countries, enabling mutually beneficial trade relationships.
Trade Arrangements Between Vietnam and the United States
The trade relationship between Vietnam and the United States embodies the principles Adam
Smith articulated. The United States has progressively lowered trade barriers, allowing Vietnamese
products to enter its market more freely. The 2001 United States-Vietnam Bilateral Trade
Agreement, followed by Vietnam's accession to the World Trade Organization in 2007 and the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have
progressively liberalised trade between the two nations (Anh, 2020).
These arrangements enable the United States to import goods from Vietnam that it produces less
efficiently, thereby realising gains from specialisation. As Hill (2023, p. 168) notes, according to
Smith's theory, "a country should never produce goods at home that it can buy at a lower cost from
other countries." The United States benefits from access to lower-cost textiles, footwear,
electronics, and agricultural products, allowing domestic resources to shift toward higher-value
activities such as technology development and advanced manufacturing. Meanwhile, Vietnam
benefits from expanded market access, employment creation, and technology transfer through
integration into global supply chains (Hill, 2023, p. 170).
Critical Challenges in the Trade Relationship
Despite the theoretical benefits of absolute advantage, the trade arrangement between Vietnam
and the United States presents significant challenges that complicate the realisation of mutual
gains. Three critical challenges warrant examination: value chain asymmetry, dependency risks, and
regulatory barriers.
Value Chain Asymmetry and Limited Value Capture
Vietnam's absolute advantages predominantly lie in labour-intensive assembly and manufacturing
stages of global value chains, while higher-value activities such as design, research, and brand
development remain concentrated in developed countries like the United States. This value chain
asymmetry means Vietnam captures a relatively small share of the final product value. For instance,
although Vietnam assembles many consumer electronics, including smartphones, the intellectual
property, software, and high-value components originate from developed countries (Doan, 2022).
This pattern reflects what scholars describe as the "middle-income trap" challenge. As Hill (2023, p.
172) observes, while specialisation yields benefits, the static assumptions of absolute advantage
theory may not fully account for the dynamic barriers developing countries face in upgrading their
productive capabilities. Vietnam's absolute advantage in labour-intensive manufacturing, while
beneficial in the short term, may perpetuate dependence on low-value activities, limiting long-term
economic development prospects.
ASSIGNMENT 2 2026
DUE 30 AUGUST 2026
Question 1
Adam Smith's Absolute Advantage and the Case of Vietnam: Trade Arrangements and Challenges
with the United States
Introduction
Adam Smith's Theory of Absolute Advantage fundamentally challenged the Mercantilist view that
trade is a zero-sum game, instead demonstrating that nations can mutually benefit by specialising
in products where they possess efficiency advantages (Hill, 2023, p. 167). This essay critically
analyses Vietnam as a case study of a developing country with absolute advantages in certain
sectors, examining the challenges it faces in its trade arrangements with the United States, a
developed nation. While Vietnam has successfully leveraged its absolute advantages in
labour-intensive manufacturing, particularly in textiles, footwear, and electronics assembly, its
trade relationship with the United States reveals significant structural challenges that complicate
the realisation of mutual gains. The analysis proceeds by first examining Vietnam's specific absolute
advantages, then exploring the trade arrangement dynamics with the United States, and finally
critically analysing the challenges that emerge from this asymmetric trading relationship.
Vietnam's Absolute Advantages: Specialisation and Efficiency
Vietnam has developed significant absolute advantages in several manufacturing sectors, primarily
driven by its abundant labour supply, competitive wage structures, and strategic economic reforms.
As Hill (2023, p. 167) explains, a country possesses an absolute advantage when it is more efficient
than any other country at producing a particular product. Vietnam exemplifies this principle in the
textile and garment industry, where it has become one of the world's leading exporters.
The country's comparative efficiency stems from multiple factors. Vietnam offers a young,
educated workforce with competitive wage rates, coupled with substantial foreign direct
investment in manufacturing infrastructure (Doan, 2022). The government's economic
liberalisation policies under the "Đổi Mới" reforms have further enhanced production efficiency by
creating a favourable business environment. Consequently, Vietnam has emerged as a global
manufacturing hub, with exports of textiles and garments reaching approximately $44 billion in
2023, making it the world's third-largest exporter in this sector (Vu & Nguyen, 2023). This
demonstrates Vietnam's clear absolute advantage: it can produce these goods more efficiently
than many developed nations, including the United States, which has largely shifted textile
manufacturing overseas due to higher labour costs.
, Similarly, Vietnam has developed strong absolute advantages in electronics assembly and footwear
production. Major technology companies such as Samsung, LG, and Intel have established
substantial manufacturing operations in Vietnam, capitalising on the country's productivity
advantages (Tran, 2021). These industries illustrate how Vietnam has effectively harnessed its
factor endowments to achieve production efficiency that surpasses that of many developed
countries, enabling mutually beneficial trade relationships.
Trade Arrangements Between Vietnam and the United States
The trade relationship between Vietnam and the United States embodies the principles Adam
Smith articulated. The United States has progressively lowered trade barriers, allowing Vietnamese
products to enter its market more freely. The 2001 United States-Vietnam Bilateral Trade
Agreement, followed by Vietnam's accession to the World Trade Organization in 2007 and the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have
progressively liberalised trade between the two nations (Anh, 2020).
These arrangements enable the United States to import goods from Vietnam that it produces less
efficiently, thereby realising gains from specialisation. As Hill (2023, p. 168) notes, according to
Smith's theory, "a country should never produce goods at home that it can buy at a lower cost from
other countries." The United States benefits from access to lower-cost textiles, footwear,
electronics, and agricultural products, allowing domestic resources to shift toward higher-value
activities such as technology development and advanced manufacturing. Meanwhile, Vietnam
benefits from expanded market access, employment creation, and technology transfer through
integration into global supply chains (Hill, 2023, p. 170).
Critical Challenges in the Trade Relationship
Despite the theoretical benefits of absolute advantage, the trade arrangement between Vietnam
and the United States presents significant challenges that complicate the realisation of mutual
gains. Three critical challenges warrant examination: value chain asymmetry, dependency risks, and
regulatory barriers.
Value Chain Asymmetry and Limited Value Capture
Vietnam's absolute advantages predominantly lie in labour-intensive assembly and manufacturing
stages of global value chains, while higher-value activities such as design, research, and brand
development remain concentrated in developed countries like the United States. This value chain
asymmetry means Vietnam captures a relatively small share of the final product value. For instance,
although Vietnam assembles many consumer electronics, including smartphones, the intellectual
property, software, and high-value components originate from developed countries (Doan, 2022).
This pattern reflects what scholars describe as the "middle-income trap" challenge. As Hill (2023, p.
172) observes, while specialisation yields benefits, the static assumptions of absolute advantage
theory may not fully account for the dynamic barriers developing countries face in upgrading their
productive capabilities. Vietnam's absolute advantage in labour-intensive manufacturing, while
beneficial in the short term, may perpetuate dependence on low-value activities, limiting long-term
economic development prospects.
