SUPPLY-CHAIN SECURITY Experts: Vietnam May Benefit as US Companies De-risk Supply Chains Now in China

By Le Nguyen and An Hai

Vietnam is well-positioned to draw U.S. investors seeking to de-risk supply chains now in China, but closer economic integration between Hanoi and Washington appears unlikely to lead to political realignment, according to experts.

Addressing local media in Hanoi during a recent visit, U.S. Treasury Secretary Janet Yellen hailed Vietnam as “a key partner” in the effort to reduce dependence on China by expanding manufacturing in the U.S. and with trusted partners.

“Vietnam welcomes the U.S.‘friendshoring,’ which is beneficial to both countries and contributes to Vietnam’s growth,” Le Dang Doanh, an economist in Hanoi who served as an adviser to the late Prime Minister Vo Van Kiet, told VOA Vietnamese in a phone interview.

Friendshoring is the practice of focusing supply chain networks in countries regarded as political and economic allies.

Carl Thayer, emeritus professor with the University of New South Wales in Australia, said closer economic integration between Vietnam and the U.S. will not lead to Hanoi realigning with Washington against Beijing, he wrote to VOA in an email.

“Vietnam and the United States already have a substantial economic relationship. The further development of this relationship will be based on mutual benefit,” he said. “China is more concerned about Vietnam’s potential security and defense relations with the United States than it is with their bilateral economic relations.”

Beijing, however, is “extremely sensitive to any U.S.-Vietnam economic relationship that undermines China’s interests,” he said, stressing “neither Beijing or Hanoi view economic relations as a zero-sum game.”

Doanh said he has seen a shift of foreign direct investment (FDI) flows from China to Vietnam, especially since trade tensions began increasing between the U.S. and China during the Trump administration. A bilateral trade agreement that came into effect in 2001 facilitated Vietnamese exporting to the U.S., he said.

Vietnam “has no ambition” of attracting U.S. businesses to completely relocate from China given that “they are already well-entrenched there after many years of investment with billions of dollars,” Doanh said.

“Vietnam just expects them to shift parts of their production, which makes it more convenient to export to the U.S.,” he said. “Vietnam continues to attract FDI to match its advantages like cheap, young and productive labor.”

Hanoi, fearing possible retaliation from China, may want to keep Washington at a remove.

“Given the intensifying China-U.S. competition and proximity between China and Vietnam, Hanoi may feel reluctant to formally upgrade its comprehensive partnership with Washington,” said Bich Tran, adjunct fellow at Washington’s Center for Strategic and International Studies, told Reuters in March.

VOA Vietnamese contacted the Vietnamese Ministry of Planning and Investment to seek comments on what Vietnam will do to attract more investment from the U.S. but has yet to receive a response.

Bui Kien Thanh, an economist in Ho Chi Minh City, said Vietnam’s geographic location would give it a competitive edge in any regional competition for U.S. friendshoring.

“As a neighbor of China, Vietnam is a convenient destination for companies seeking to relocate from China,” Thanh told VOA Vietnamese over the phone.

“What’s more, Vietnam is located at the heart of the most populous and the most economically dynamic region of the world, between Northeast and South Asia,” he said.

Estimates of how much of the world’s trade passes through the South China Sea near Vietnam range from about 20% to 30%.

The U.S. currently ranks second to China in terms of value of bilateral trade with Vietnam, which topped almost $139 billion in 2022. And the U.S. is the largest export market for Vietnamese-made textiles, footwear and electronics.

Thanh said Hanoi “is well-disposed to Washington” and “very welcoming to U.S. businesses.” The two countries marked 10 years since the establishment of a Comprehensive Partnership this year.

In her Hanoi speech on July 21, Yellen cited green energy and semiconductor manufacturing as potential sectors for Vietnam to join the global supply chain. In 2021, Amkor, the Arizona-based provider of semiconductor packaging and test services, announced plans to build a smart factory in the northern Bac Ninh Province. Intel has its largest assembly and testing facility in Ho Chi Minh City, Vietnam’s largest city.

Thanh said that Vietnam “cannot develop its own semiconductor industry without U.S. help,” adding, “If Intel can open its largest facility in Vietnam, other American chip makers can make it too.”

Le Nguyen and An Hai are VOA News reporters. This article is published courtesy of the Voice of America (VOA).