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The Golden Opportunity for the Vietnamese Economy - US

20/09/2023 15:14

By enhancing their relationship, Vietnam is currently in a prime position to transition its economy and become deeply integrated into the global high-tech supply chain, according to experts.

Prime Minister Pham Minh Chinh, during his meeting with President Joe Biden on September 11th, emphasized that the economy, trade, and investment should be the 'eternal engine' of bilateral cooperation.

The declaration of a Comprehensive Strategic Partnership between Vietnam and the United States, as Ambassador Pham Quang Vinh puts it, elevates the level of trust and understanding between the two countries, ensuring a solid foundation for long-term economic cooperation. In the context of disrupted supply chains, shifts, and competition among major nations, he believes that the U.S. needs reliable and secure production partners.

General Secretary Nguyen Phu Trong held talks with US President Joe Biden at the Party Central Office on the afternoon of September 10. Photo by: Giang Huy

Many experts view the highest significance of the Vietnam-U.S. relationship as building strategic trust, which is the basis for long-term investments by businesses.

Dr. Nguyen Khac Giang, a visiting researcher at the Yusof Ishak Institute in Singapore, points out that the Biden administration is aggressively pursuing a de-risking strategy, shifting supply chains to friendly and ally partners (friend-shoring). The upgrade of Vietnam-U.S. relations creates the foundation to capitalize on this strategic opportunity.

"This is a sufficient condition - namely, a political relationship that protects the business interests and development of both sides," assessed Nguyen Quang Dong, Director of the Institute for Policy and Development Communication. The premise of this is a favorable and mutually supportive business relationship between Vietnamese and American companies built over decades.

Prime Minister Pham Minh Chinh and President Joe Biden attended the Vietnam-US Summit on investment and innovation on September 11 in Hanoi. Photo by: Giang Huy

The friend-shoring strategy was discussed with Vietnam by U.S. Secretary of the Treasury Janet Yellen during her visit in July. She stated that the U.S. aims to expand trade relationships and diversify supply chains with trusted partners like Vietnam to reduce global shocks and political risks. Since 2021, the U.S. has been actively restructuring global supply chains, particularly in the semiconductor industry, which encompasses critical technologies.

Vietnam's first opportunity lies in transitioning its economy towards modernization and integration into high-tech supply chains.

In their joint statement, the U.S. pledged to support Vietnam in training and developing a high-tech workforce and promoting the rapid growth of the semiconductor ecosystem in Vietnam.

In reality, many U.S. semiconductor companies have increased their investments in Vietnam recently. Amkor Technology (based in Arizona) is expected to complete its $1.6 billion semiconductor factory in Bac Ninh in September 2023, with trial production scheduled for late October. The company states that this is Amkor's largest factory worldwide. In May, Marvell Technology Group announced the establishment of a world-class Integrated Circuit Design Center in Ho Chi Minh City, equivalent to Marvell's centers in the U.S., India, and Israel.

Vietnamese personnel working at the Intel Products factory. Photo by: IPV

Vietnam is expected to further advance in trade, especially as it faces a decline in export orders due to slower global economic growth.

The joint statement by General Secretary Nguyen Phu Trong and President Joe Biden affirms that Vietnam and the U.S. will create favorable conditions, further open their markets for each other's goods and services, and support trade and economic policies, addressing trade barriers under the Trade and Investment Framework Agreement.

"Traditional export products with strengths such as textiles, wood, leather shoes, and electronics will recover with positive growth," said Minister of Industry and Trade Nguyen Hong Dien. Vietnamese agricultural products will also have more access to the U.S. market. In August, fresh coconut, for example, became the eighth fruit to be exported in large quantities to the United States.

Statistics from the statistics agency show that Vietnam-U.S. trade reached nearly $124 billion last year, a 275-fold increase over 27 years. The U.S. is Vietnam's largest export market and the second-largest trading partner. Conversely, Vietnam is the seventh-largest trading partner of the U.S. worldwide and the largest within ASEAN.

However, according to experts, Vietnam still has a lot to do because this opportunity did not come about by chance.

For example, in participating in the high-tech supply chain, Nguyen Quang Dong emphasizes the need to reevaluate the failures that the supporting industries have faced over the past few decades.

The ecosystem for supporting industries is still weak in Vietnam, which has left Vietnamese companies mostly involved in low-tier assembly. With high-tech supply chains, the requirements and demands will be even more rigorous.

"We need to carefully analyze which part of this new supply chain we can participate in, and then invest systematically in domestic enterprises with a strategy. Don't assume we can join immediately," Dong said. This is to avoid repeating the supply chain failures for FDI businesses in the previous period.

"Vietnam itself needs to enhance its capacity to seize this new opportunity," added Ambassador Pham Quang Vinh. According to him, at this point, the government should work with the U.S. to implement the major policies that have been outlined, focusing on policy frameworks, infrastructure, and human resources.

Regarding trade, Minister Nguyen Hong Dien noted that the U.S. is an extremely large importing market, highly competitive with a $3.277 trillion scale, requiring companies to quickly adapt.

Businesses must clearly define product strategies, partners, distribution channels; thoroughly understand export regulations and trade defense-related matters; ensure clear sourcing of raw materials and research to upgrade production facilities to meet "green production standards." Companies should also apply a strategy of diversifying their customer base and seek niche markets to reduce risks.

Nguyen Khac Giang also emphasizes that at this point, the most important thing is to create conditions for domestic businesses to capitalize on the opportunity, becoming an indispensable part of the global goods and services flow.

"When this 'favorable time' passes, Vietnam's economy itself must have the internal strength to stand at a higher position in the world," he said.


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