Given developments over the last several years, it is evident shifts in international trade are evolving. This was highlighted by recent U.S. and China trade disputes that has since encouraged an attitude of near-shoring. It has also led to a preference for “friend-shoring,” or dealing with trade partners aligned with political philosophies. In the midst of this, some nations are now in a position to gain some advantages as trade shifts occur. Vietnam is one of those nations, and it seems the country is trying to better leverage its position for its future. Specifically, it is offering chip production in Vietnam in exchange for investments in renewable energy in Vietnam. If all goes as planned, the country stands to significant raise its status as a global trade partner.
(Learn more about “friend-shoring” in this Bold story.)
Vietnam has been considered as a potential replacement to China for a few years now as it relates to manufacturing. Supply chain disruptions that occurred during COVID and as a result of China’s zero tolerance policies in the pandemic helped. But so did escalating trade tensions and barriers between the U.S. and China. As a result, some companies like Apple have already shifted some of their manufacturing operations to Vietnam. However, receiving more of the U.S.’s chip production in Vietnam would be a significant boost to the country. In order to accomplish, some issues must first be addressed including the lack of renewable energy in Vietnam. Based on recent announcements, Vietnam may be close to getting its wishes fulfilled.
U.S. Investments in Renewable Energy in Vietnam
On a recent trip to Vietnam, U.S. Undersecretary for Economic Growth and the Environment suggested major developments are in the works. Jose Fernandez suggested that 15 American companies are considering an $8 billion investment in renewable energy in Vietnam. Though the companies were not named, the investment could be significant for the country’s ongoing pursuit of modernity. More importantly, this would help boost semiconductor chip production in Vietnam significantly. Given that renewable energy is a concern for chip manufacturers in Vietnam, this has been a barrier. It’s likely, however, that U.S. investments hope to help the Vietnam address these issues so that they can reap benefits as well.
(American oil, wherefore art thou? Read more in this Bold story.)
It’s worth noting that semiconductor chips are going to be in high demand for many years to come. The growth of generative AI expected in the coming years will require a significant supply of these. And companies (and countries) able to take advantage of this will be best positioned to thrive. At the current time, however, the bulk of semiconductor chip production occurs in Taiwan, Japan, and South Korea. In fact, these countries account for over half of all semiconductor chips made. Naturally, Vietnam would like to get in on the action by increasing chip production in Vietnam. And U.S. companies would like nothing more than to have a low-cost partner like Vietnam in the process. But in order to make this a reality, these same firms require renewable energy in Vietnam to support such operations. And thus far, that does not adequately exist.
Establishing the Right Infrastructure
In trying to advance its renewable energy in Vietnam, efforts have been made. Vietnam’s leaders have sought to create both on-shore and off-shore wind farms as well as developing more robust solar energy structures. But to date, not only have investments to achieve these goals been lacking. But Vietnam also lacks a comprehensive regulatory framework to oversee renewable energy use. This is quite important for U.S. firms and will likely be a caveat before actually committing to the $8 billion investment. Chip manufacturing requires significant energy as well as water resources. Thus, Vietnam has some work to do if it hopes to leverage chip production in Vietnam for renewable energy investments.
Developing more comprehensive renewable energy in Vietnam is not the only concern for potential chip manufacturing firms. The other high priority item involves a qualified workforce to perform such operations. While labor costs are inexpensive in Vietnam, skills and education are lacking to an extent. In this regard, the U.S. is also working with Vietnam to invest in enhanced STEM education in its school systems. While this may take years to make a difference, it demonstrates the level of U.S. commitment to Vietnam as a trade partner. This coincides with the U.S. announcement in September of 2023 citing a comprehensive strategic partnership with Vietnam. And it further highlights a strong desire to distance the U.S. from China while pursuing its own chip manufacturing pipeline.
Taking Advantage of the Moment
According to some statistics, the semiconductor chip industry has been valued at $600 billion currently. Naturally, this is anticipated to expand significantly in coming decades. This explains why the U.S. recently passed the CHIPS (Creating Helpful Incentives to Produce Semiconductors and Science) Act. This piece of legislation provides $280 billion in advancing valued supply chains globally for this purpose. And it has targeted seven countries that will be funded under the legislation’s International Technology Security and Innovation Fund. It’s no surprise that Vietnam is one of these nations and reaping the benefits. This is particularly true as it relates to Vietnam’s school systems with targets to produce 500,000 engineers in coming decades.
At the same time, the country has expressed a desire to enhance its renewable energy in Vietnam. In fact, it hopes to be net zero in carbon emissions by 2050. It knows that in order to attract chip production in Vietnam, this will be a necessity. But Vietnam is also aware of the current global trade landscape and the U.S.’s need to boost chip manufacturing. As such, it knows that it offers a great solution for American needs within the semiconductor industry. And it’s negotiating to create a true win-win in the process. While the investments from U.S. firms have yet to be set in stone, things are looking quite favorable for Vietnam. By seizing the current moment, Vietnam hopes to catapult itself into a global manufacturing leader. That’s certainly something to watch for in the coming months to years.
