Joe Biden, the incumbent President of the United States, has ventured on a diplomatic visit to Vietnam, targeting the enhancement of economic rewards between the nations and decreasing America’s dependence on China. To this end, Washington and Hanoi have augmented their diplomatic relations to uphold a ‘comprehensive strategic partnership.’ This significant symbolic step is deemed critical by experts in fostering trust amidst the states, as America seeks a dependable political ally in Asia to navigate tensions with China and foster its ambitions for leading-edge technologies, such as chipmaking.
Multinational companies like Apple and Intel have already taken strides towards bolstering their presence in Vietnam, expanding their supply chains and overwhelming numerous local factories. This has facilitated the continuation of Vietnam’s economic expansion, remaining resilient amidst the sluggish global growth.
Following the G20 summit in India, Biden’s visit to Vietnam is the first by a US president since Donald Trump’s trip in 2019. The President has engaged in discussions with Vietnamese General Secretary Nguyen Phu Trong and other leaders, underscoring the advancement of a technology-centric Vietnamese economy and stability in the region.
In the years leading-up to this trip, American-Vietnamese trade has seen an impressive increase as a result of an existing partnership established in 2013. Moreover, last year saw Vietnam becoming America’s eighth largest trading partner, a considerable leap from the tenth place it occupied just two years prior. This rising partnership has led to a strong emphasis on ‘friend-shoring,’ a strategy of diversifying suppliers towards allied nations, advocated particularly by US Treasury Secretary Janet Yellen, to shield businesses from political friction.
The recent escalation in tensions, coupled with hiking labor costs and unpredictable operating environment, has prompted corporations to reconsider their extent of business engagement in China, despite it being known as the world’s factory.
Concurrent with escalating US-China trade wars since 2018, businesses of varying sizes have begun to redirect their manufacturing base to prospering markets like Vietnam and India, in response to tariffs. This trend has perpetuated following the outbreak of the global pandemic, where companies have been nudged to spread out their production hubs as a strategic move to reduce reliance on a single manufacturing base.
These shifts toward “friend-shoring” could have significant implications for China, potentially leading to job losses. Corporations seeking to transition to Vietnam might find it challenging due to overextended factories. Despite these challenges, Vietnam has been recognized for its potential to play a key role in building resilient semiconductor supply chains.
Major players in the industry, such as Intel, see Vietnam as a promising destination. The chipmaker has pledged an investment of $1.5 billion to establish a campus outside Ho Chi Minh City, anticipated to become its largest assembly and test facility globally.
Notwithstanding expectations of a slowdown in economic growth, Vietnam’s projected 5.8% growth outshines the forecasted global growth of 3%. Amidst this vigorous growth, Vietnam is viewed as a promising destination for corporations seeking potential growth amidst a challenging global environment.
However, concerns persist regarding Vietnam’s tech regulations, potential data restriction policies, and shortcomings in infrastructure compared to China. Despite these reservations and Vietnam’s authoritarian political structure, businesses perceive the country as a desirable hedge against unpredictable trade environments.
For the Biden administration, the strategic partnership with Vietnam represents a crucial alternative and a foreign policy victory, securing a positive trajectory ahead of 2024.
