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Vietnam - Establishing A Position in Global Manufacturing Hub

A Rising Star

As a result of the US-China trade dispute and supply chain disruptions during the Covid-19 outbreak, countries sought alternatives to China as a contingency plan. There was a lot of discussion about Vietnam in many big buyers' global supply chain strategic plans or proposals. Accordingly, Vietnam benefited from the "China + 1/N" or "Decoupling/De-risking" strategy.

“I'm going to be going to Vietnam shortly, because Vietnam wants to change our relationship and become a partner,” President Biden said in a campaign held in early August. As a result, Vietnam’s position in the US-Vietnam tide and trade relationship became a hot topic. There was even talk that Vietnam might threaten China's position in the global supply chain soon.

Closer US-Vietnam Cooperation

The United States and Vietnam celebrated the 10th anniversary of the Comprehensive Partnership Establishment in July. The bi-literal trade of these two countries have reached $139 billion in 2022, which was 300 times higher than it was in 1995 when the diplomatic tide resumed. Vietnam nowadays is the 8thlargest trade partner to the US.

When the US Ambassador participated in an event at the Foreign Trade University, Vietnam in March; he said “Vietnam has become a significant supplier of products to the United States, including apparel, footwear, furniture, seafood, and electronics. Vietnam is also a key node in supply chains for goods that are vital to the American economy: from the semiconductors that power everything from our phones to our cars, to the solar panels driving the clean energy revolution and fight against climate change”.

Processing Trade Instead of Manufacturing Trade

Vietnam's General Statistics Office shows five export items worth over $10 billion in the first seven months of 2023: Electronics (including computers and components); Phones & components; Machinery (including tools and spares); and Garments and textiles and Footwear. From January to July 2023, these five items contributed $112 billion: 56.7% of total exports.

Some optimistic stakeholders may be excited by Vietnam's rapid growth in global supply chain environments and expect it to soon overtake China. However, it might be too early to jump to the conclusion that Vietnam could replace China (at least in some particular segment) in the near future.

Trading value revenue for the first 7 months of 2023 against the 6 top export countries/regions: US, China, EU, ASEAN, Korea & Japan could provide useful information about Vietnam's industrial environment and capability. Despite importing $58.6 billion and $28.5 billion from China and Korea, respectively, Vietnam exported only $31.6 billion and $13 billion. Concurrently, Vietnam has high trade surpluses with the US and EU. There is a strong indication that raw materials or semi-finished products were imported from big manufacturing base countries like China and Korea, converted to finished products, and exported to the US and EU.

Vietnam exported $153.6 billion to these 6 countries/regions but also imported $139.5 billion from them, which signaled that the revenue gained from export/import difference is not as high. The countries still have a long way to go before they can increase their manufacturing strength to reduce the import portion and increase export added value.

For more information about the information on the import & export data for Vietnam, please refer to the following links:

Competing Against The Dragon and The Elephant

Other than China's strong manufacturing and infrastructure base, India would also compete with Vietnam in the global supply chain arena. With the largest population in the world, India has a strong workforce to compete against competition: Apples strategy of iPhone production bases gives a good example of this. In order to survive against two giant countries, Vietnam must find their niche. 

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