Day: October 21, 2022

When it comes to the global economic stage, major players are well-recognized. The U.S. and China are actively engaged in a competition for global business dominance. Likewise, the EU, United Kingdom, and Japan also compete for global trade rankings. But Vietnam and global trade power tend to not be included in the same sentence very often. Interestingly, however, this appears to be changing. Not only has U.S. trade relations with Vietnam improved dramatically over the last decade. Many other countries and businesses are seeing tremendous potential in the country as well. As a result, Vietnam is among one of the fastest growing global trade nations in the world.

In explaining Vietnam’s rapid rise in the world economy, a number of factors account for these developments. Most notably, Vietnam boasts an abundance of inexpensive labor that has attracted many suppliers and businesses. But at the same time, many recent events on a global stage have similarly boosted the status of Vietnam and global trade. These events, ranging from politics to business decisions, have resulted in growing trade relations with Vietnam with many countries. Understanding this, it’s worth examining Vietnam’s potential in revising existing global supply chain logistics. This especially important given the evolving shifts in globalization overall.

(Read more about how politics and business intersect in this Bold story.)

“Vietnam is seen as one of the very important, necessary allies for the U.S. effort to push back on China, particularly in the South China Sea.” – Phil Robertson, Deputy Director for Asia at Human Rights Watch

Geopolitical Effects on Vietnam’s Trade

In an effort to appreciate why Vietnam and global trade progress has occurred, geopolitical developments must be considered. From a longer-term perspective, China’s rise economically has certainly been a factor. As China has become a dominant force in manufacturing, the U.S. has become increasingly concerned. This resulted in a trade war between the U.S. and China, which led to rising tariffs. And it has also led to shifting trade policies that attempt to diminish reliance on China overall. While many democratic nations including some in Southeast Asia can fill this void, Vietnam offers many attractive features. Among the most notable one is its abundant and low-cost labor that is quite ideal for many manufacturing needs.

China’s influence on the global economy is a major factor for growing trade relations with Vietnam. However, it’s not the only geopolitical development leading to Vietnam and global trade growth. Russia’s recent decline on the economic world stage represents another important factor. Prior to Russia’s invasion of Ukraine, Russia was making inroads with many Southeast Asian nations including Vietnam. But since, many of these same countries have cut ties with Russia, leaving a trade void in its wake. This has certainly been the case in Vietnam, which has seen a 50% reduction in exports to Russia. Payment and transportation delays have accounted for these events. As such, Vietnam is naturally looking to attract new trade partners. This motivation has led to more assertive efforts by Vietnam to seek out new global trade relationship.

“U.S. foreign policy has always been filled with tension between strategic interests and liberal values. It’s best when the two goals align, but when they do not, U.S. policymakers tend to prioritize the more immediate strategic interests, as is the case with Vietnam.” – Andrew Yeo, Senior Fellow at the Brookings Institution

Improving US-Vietnam Trade Relations

As the leading economic world power, U.S. trade relations with Vietnam could certainly affect Vietnam’s global success. For many years following the Vietnam War, the U.S. imposed many trade embargos on the country hampering its progress. But in 1987, diplomacy efforts between the two countries began again. This was then followed by lifting of trade embargos completely in 1994 and a bilateral trade agreement in 2001. Today, Vietnam is now one of the top trade importers for U.S. goods, particularly in agriculture. Likewise, the U.S. is the highest recipient of Vietnam’s products, exceeding 25% of its total exports. This has been a remarkable shift in Vietnam and global trade relations in a relatively short time period.

Given that Vietnam is a communist country, these developments with Vietnam and global trade with the U.S. might seem odd. Ideologically speaking, this opposes U.S. trade pursuits that promote friend-shoring and alliances with democratic nations. But these differences have been set aside in part because of one major reason. Both Vietnam and the U.S. share a common economic foe in China. China currently claims rights to all the South China Sea, which both Vietnam and the U.S. adamantly oppose. Plus, Vietnam continues to dispute China’s claim over the Spratly and Paracel Islands. As a result, a common foe has fueled trade relations with Vietnam and the U.S. despite political differences. And naturally, this too has boosted Vietnam and global trade opportunities.

“[Vietnam] has been doing well so far by attracting investment.” – Park Hyeon-su, Vietnam Director at Anam

A New Global Business Target

Trade relations with Vietnam with several nations have certainly fueled Vietnam’s progress as of late. But multinational corporations looking to resolve supply chain issues have also begun partnering with Vietnam. Dozens of technology suppliers and other companies have relocated to Vietnam because of challenges elsewhere. Specifically, supply chain setbacks due to pandemic restrictions in China and rising tariffs have motivated such pursuits. A disciplined workforce, cheap labor, and sate-run industrial policies are all considered positive factors in this regard. As such, a boom of Vietnam and global trade in the tech industry is emerging.

Recently, Apple announced it would be manufacturing its AirPods in Vietnam (read more about Vietnam and Apple’s new marriage in this Bold story!) along with versions of its Apple Watch and laptops. Other well-known companies increasingly relying on Vietnam and global trade production include Samsung, Intel, and Xiaomi. And the number of technology suppliers continues to grow in the country as companies look to diversify away from China. Based on these developments, it’s evident that many favorable conditions have led to Vietnam’s increased presence in global trade. Attractive trade relations with Vietnam as well as multinational company interest have spawned the country’s global commercial prominence. By all accounts, it appears Vietnam is poised to play a major role in the future of global supply chains.

Vietnam’s Recent Boom in Foreign Investments

Whether you realized it or not, Vietnam’s economy has doubled in size in the last decade. Between 2010 and 2020, the country has seen quite an influx of foreign company investments with most being technology firms. These same trends supporting Vietnam’s economic future continue to day. In 2018, there were 14 major technology suppliers in the country. This increased to 21 within a period of two years. Similarly, technology exports have also boomed as Vietnam and global supply changes have progressively linked. In 2020, Vietnam’s technology products represented 42% of its exports, up from 13% in 2010. By all accounts, it’s evident that Vietnam is experiencing a rapid rise in global trade activities.

There are notably several factors that have contributed to the expansion of Vietnam and global supply chains. The pandemic highlighted the lack of diversification for nations and companies in relation to logistics and manufacturing. These problems persist even today as countries like China continue to impose strict policies that affect supply chain efficiency. In addition, geopolitical events including trade wars between the U.S. and China and Russia’s invasion of Ukraine also play role. Concerns about existing dependence on these nations in particular have encouraged the exploration of alternatives. All of these events have contributed in making Vietnam’s economic future look that much brighter.

“Vietnam is also a country led by a communist party but in international affairs it doesn’t have revisionist actions like China. It doesn’t bully other countries and doesn’t try to undermine the international order.” – Bich Tran, Adjunct Fellow at the Center for Strategic and International Studies

An Attractive Supply Chain Alternative

When it comes to the attractiveness of Vietnam and global supply chains, there are some clear advantages. The most notable ones relate to the country’s workforce. Not only is Vietnam a highly populated nation, but its labor is inexpensive compared to other regions. At the same time, having state-run industries have resulted in workers who are highly disciplined in nature. These are appealing to some sectors in particular, including those companies utilizing assembly lines in manufacturing. Similarly, technology firms in need of hardware manufacturing also perceive Vietnam as a good alternative to places like China. These are the innate features that have helped foster Vietnam’s economic future as of late.

Of course, there are other countries that also look appealing to these same firms. For example, Indonesia and the Philippines are also highly populated with inexpensive labor pools. Many companies are already outsourcing various operations to these nations as well. But compared to Vietnam, wages tend to be a bit higher as it relates to hands-on manufacturing skills. Vietnam also has been more vocal in comments against China, especially given the countries’ history involving the South China Sea. These additional factors have encouraged greater trade with Vietnam with the U.S. As such, the association between Vietnam and global supply chains has increased. Vietnam’s economic future looks brighter for these reasons as well.

“…[I]f [Vietnam] does not upgrade to complex products, it risks a vicious cycle of technological decline, environmental pollution, low labor productivity, high energy consumption and low efficiency.” – Park Hyeon-su, Vietnam Director, Anam

Attractive But Far From Perfect

It seems that Vietnam is enjoying its time in the spotlight at present. The growth of Vietnam and global supply chains within the country support the potential for positive change. But Vietnam is far from ideal in many ways, especially when comparing it to China. For one, Vietnam’s labor force may be disciplined and cheap. But the nation lacks skilled laborers capable of managerial abilities or higher-level talents. In addition, despite many technology suppliers relocating to Vietnam, the country has no real tech stars of its own. Then, of course, there are ideological issues related to human rights and censorship similar to China. These pose concerns about Vietnam’s economic future, and many have touted the country as simply a glorified assembly line.

This leaves Vietnam’s economic future at a clear crossroads where options must be considered. Vietnam could invest in training and developing skills workers for the future, but with this often comes higher wages. This could undermine their current advantage on the global marketplace. They might also establish trade barriers and industrial policies more favorable to the state. But this too risks the current status of Vietnam and global supply chains. Other Southeast Asian nations including ones with cheap labor like Cambodia may begin to look more appealing. The most likely strategy would be for Vietnam to leverage current success and foster their own national technology champions. This is recipe that countries like Taiwan and South Korea have pursued with success. In any event, Vietnam’s economic future is far from predictable at this time. While it is certainly enjoying some good times on the global market, it’s simply not clear how long these glory days will last.

 

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