A big player in global manufacturing supply chains, Vietnam is enjoying increased investment and growing export revenue, becoming one of the world’s top 20 exporters in recent years.
By building diplomatic and economic relations with both established and emerging global powers, all during a period of increased geopolitical tension, it’s assuming greater prominence on the world stage.
However, despite signing a raft of free trade agreements (FTAs) in past decades, the country’s trade department suggests its small, domestic firms need to better exploit their benefits to boost Vietnam’s export revenues.
Russian visit
Vietnam welcomed Russian president Vladimir Putin to Hanoi last week, marking his first trip to the South-East Asian country since 2017. His arrival followed a visit to North Korea and is part of a tour of allied nations amid Russia’s geopolitical isolation after its 2022 invasion of Ukraine.
The visit ended with Putin and Vietnamese president To Lam signing 11 memorandums, pledging greater cooperation in areas like civil nuclear projects, energy and petrol and disease prevention. To Lam told reporters he wanted their counties to boost “security and defence ties”.
Putin told reporters they discussed the creation of “an adequate and reliable security architecture in Asia-Pacific based on the principles of not resorting to force, and of resolving differences peacefully”.
Although bilateral trade between the two countries only accounted for US$3.6bn 2023, a fraction of the $100bn+ sums exchanged with the US and China, Vietnam is dependent on Russia for 80% of its arms imports.
US response
The US treasury has responded to developments by critiquing countries that “give Putin a platform to promote his war of aggression” and “normalise his atrocities”, telling the FT:
“We cannot return to business as usual or turn a blind eye to the clear violations of international law Russia has committed in Ukraine.”
However, just a day after Putin left, US envoy Daniel Kritenbrink flew to Hanoi, per a report from AP. The assistant secretary of state for East Asia and Pacific affairs said trust between the US and Vietnam was at an “all-time high”.
He added that:
“Only Vietnam can best decide how to best safeguard its sovereignty and economic interests.”
At the end of last year, US president Joe Biden visited Hanoi, signing a comprehensive strategic partnership – Vietnam’s highest diplomatic arrangement with the US since the end of hostilities between the two nations in 1973. Washington has pushed for closer ties with Vietnam and other Asia-Pacific nations in recent years amid fraying relations with Beijing.
This is reflected economically by growing bilateral trade. Worth US$142.1bn in 2022, according to US government data, Vietnam enjoyed a substantial surplus as US exports totalled $128.4bn.
Chinese co-dependency
However, a Reuters review of trade data suggested that Vietnam’s increased US trade has resulted from China’s circumvention of US tariffs.
In addition to hoovering up manufacturing contracts as countries offshore their production away from China – foreign direct investment (FDI) hit US$36.6bn last year – Vietnam could be profiting from diverted Chinese exports.
Chief economist at research firm BMI, Daniel Tay, told the publication:
“The surge in Chinese imports in Vietnam coinciding with the increase in Vietnamese exports to the US may be seen by the US as Chinese firms using Vietnam to skirt the additional tariffs imposed on their goods”.
However, the report noted the dependency is mutual, with Vietnam requiring parts manufactured in China for many of its US-bound exports.
According to data from April, among Vietnam’s top imports from China were integrated circuits, flat panel displays and electric batteries.
Challenging the cooperation is rising tension over the South China Sea, as Beijing lays claim to the entire territory to the consternation of other Asia-Pacific nations. Vietnam has said it’s ready to hold talks with the Philippines over a contested, resource-rich undersea shelf.
Both nations have clashed with China over what they say is a redrawing of the map.
Exploit FTAs
While the county boasts trade agreements with a range of international powers in addition to the US and China, a recent report by Viet Nam News highlighted that domestic companies needed to do more to exploit the opportunities these deals contain.
Whereas multinational firms recently attracted to the country are the main beneficiaries of FTAs, in order to meet the government’s ambitious target of 6% export growth, domestic producers will need to start trading their goods and services abroad.
Rules of origin rule were reported as the primary obstacle to these companies’ export ambitions, with Vietnam’s Ministry of Industry and Trade (MIT) describing certificates of origin as the “golden key” that can grant access to new markets.
MIT found that just over a third of export turnover from these new deals made use of preferential treatment requiring a certificate of origin.
Taking Vietnam’s FTA with the EU as an example, Vietnamese businesses “could only take advantage of 26% of the agreement's incentives while the rate for FDI-based Việt Nam enterprises was significantly greater.”
This divide is present when looking at the nation’s key exports.
Reflecting increased investment, higher-value products – phones, office and broadcasting equipment – generate a greater proportion of the country’s export revenue, yet Vietnam is still the world’s largest exporter of agricultural products like fuel wood, coconuts, cashews and cinnamon.
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