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Exploring Vietnam’s Rapid Growth as a Viable Alternative to China for the US

President Joe Biden’s visit to Vietnam marks a significant milestone in strengthening economic ties between the United States and Hanoi. This move is part of a broader effort to reduce America’s dependency on China, a strategy that has gained momentum in recent years. Let’s delve into the details of this visit and its implications under various headings.

A Strategic Partnership with Promise

The formal upgrade of diplomatic ties between the United States and Vietnam to a “comprehensive strategic partnership” is a symbolic yet highly significant step. Experts believe that this move will foster trust between the two nations as the United States seeks a reliable ally in Asia to navigate its complex relationship with China and advance its ambitions in critical sectors like chipmaking.

Corporate Giants Pave the Way

Notably, companies such as Apple and Intel have already expanded their presence in Vietnam to diversify their supply chains. This strategic move has led to the flourishing of Vietnamese factories and has contributed to the nation’s robust economic growth, defying the global economic slowdown.

A Landmark Deal

During his visit, President Biden announced a groundbreaking deal between Boeing and Vietnam Airlines, valued at $7.8 billion. This deal is expected to create more than 30,000 jobs in the United States, underlining the mutual benefits of strengthened economic ties between the two countries.

Rekindling Relations

This visit is historic, as it marks the first trip by a U.S. president to Vietnam since Donald Trump’s visit in 2019. President Biden’s meetings with Vietnamese General Secretary Nguyen Phu Trong and other leaders are geared toward promoting a technology-focused Vietnamese economy and enhancing regional stability. These efforts build upon the already surging trade relationship that has evolved since the 2013 partnership agreement.

A Booming Trade Relationship

In 2022, the United States imported nearly $127.5 billion worth of goods from Vietnam, a substantial increase from previous years. Vietnam has risen to become America’s eighth-largest trading partner, a remarkable ascent from its position just two years earlier.

Friend-Shoring: A Strategic Shift

U.S. officials, led by Treasury Secretary Janet Yellen, emphasize the importance of “friend-shoring.” This strategy involves moving supply chains toward allied nations to safeguard businesses from geopolitical tensions and disruptions.

China’s Challenge and the “China Plus One” Strategy

Geopolitical tensions, rising labor costs, and an uncertain operating environment have prompted companies to reconsider their reliance on China. The U.S.-China trade war, which began in 2018, accelerated the shift of manufacturing to emerging markets like Vietnam and India. The “China plus one” strategy, which involves spreading production hubs to reduce reliance on a single manufacturing base, gained prominence during the pandemic.

The Exodus and Economic Impact

This shift could have far-reaching consequences for China, potentially costing millions of jobs that rely on exports to the West. It is estimated that around 300,000 jobs, mainly in low-tech manufacturing, could move from China to Vietnam.

Vietnam’s Appeal as an Investment Destination

Vietnam has been an industrial hotspot for years, with factors like lower wages and a youthful population providing a solid workforce and consumer base. However, some companies may find it challenging to transition as Vietnamese factories are already stretched to meet demand.

Photo by Joshua Sukoff

Overheating and Supply Constraints

Experts point to “overheating” in Vietnam’s manufacturing sector, with demand often outstripping supply. This intense competition may pose challenges for companies looking to establish a presence in the country.

The Semiconductor Partnership

The semiconductor industry has emerged as a focal point of U.S.-China tensions. Both nations are racing to enhance their capabilities in this sector, leading to export controls aimed at limiting each other’s capacity. Vietnam is seen as a trusted partner for semiconductor supply chains, with Intel committing $1.5 billion to a major facility in the country.

Positive Economic Outlook

Despite an expected slowdown in growth to 5.8% from 8% in the previous year due to reduced overseas demand, Vietnam’s growth outpaces many major global economies. This growth potential makes Vietnam an attractive destination for corporations seeking opportunities amid a challenging global landscape.

Corporate Interest in Vietnam

A substantial business mission to Vietnam, led by the US-ASEAN Business Council, drew participation from 52 American firms, including industry leaders like Netflix and Boeing. However, concerns remain about Vietnamese tech regulations and infrastructure limitations.

Navigating Similarities and Differences

Vietnam shares some political characteristics with China as an authoritarian one-party state. However, it presents an attractive option for companies seeking cost-effective alternatives to manufacturing in China. The familiarity of Chinese suppliers in Vietnam further facilitates this transition.

The Biden Administration’s Strategic Goals

The Biden administration is keen on securing Vietnam as an alternative, and the comprehensive partnership reflects this commitment. Establishing foreign policy victories ahead of the 2024 election is a priority, and strengthening ties with Vietnam is a crucial part of this strategy.

President Biden’s visit to Vietnam underscores the growing significance of this Southeast Asian nation in America’s efforts to diversify supply chains, reduce reliance on China, and secure key technologies. Vietnam’s economic growth, strategic location, and potential to play a crucial role in the semiconductor industry position it as a valuable ally for the United States in the evolving global landscape.

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