Vietnam's export machinery is accelerating

Southeast Asian nations are becoming an attractive alternative to China as the world redraws its trade map. But they need to stretch themselves if they want to attract more of the tech supply chain. Vietnam is a typical case.

Vietnam's economy grew 13.7% year-on-year in the third quarter thanks to stronger exports to the US. This result is based on a strong recovery in personal consumption and a low base effect (unexpected variation in monthly inflation figures).

Tensions between Beijing and Washington, China's zero-Covid policy and conflict between Russia and Ukraine have heightened risks in the global supply chain. Vietnam is one of the countries that benefits greatly due to its proximity to China and participation in many free trade agreements. Currently, Vietnam is having the opportunity to move further in the value chain from assembly, packaging and testing. But Southeast Asia's export powerhouse will need massive investments in infrastructure and human resources to get there, no small task.

Vietnam's high-tech exports have grown to $101.53 billion in 2020 from $3.01 billion in 2008 (a more than 30-fold increase), according to World Bank data. Goldman Sachs data shows that the share of US technology imports directly from China has fallen by 10% since 2017, mainly due to a slowdown in mobile phone exports from China.

Vietnam is the biggest beneficiary: Vietnam has increased its share of US technology imports by 6% over the same period, largely from South Korean electronics manufacturers like Samsung.

Former US President Donald Trump's weaponization of trade with China may have kicked off the process, but the pandemic also seems to have played a role. Many companies are looking to establish a more reliable supply chain by diversifying factories. Vietnam currently has the presence of Samsung, Intel, Foxconn and LG. Vietnam is also home to a small portion of Apple's global output, one of the countries gaining insight from the biggest US tech company as an alternative to China.

However, dependence on China has been built over decades and is deepening. In a recent note, Oxford Economics said that while it expects Southeast Asian exports to grow, breaking its reliance on China will require its dependence on Chinese industry to decrease. significant - and there is little evidence of this. Vietnam is still heavily dependent on foreign intermediary inputs.

Moving from former assembly to being a primary site for manufacturing advanced products that are then used elsewhere is much more difficult. At a minimum, it may require a more qualified workforce and significant investment in infrastructure. China's current state-of-the-art transportation and electricity infrastructure, a team of engineers, many of whom were trained abroad, are still the advantages of the billion-people nation.

Vietnam's exports are showing signs of decline with the US economy losing its attractiveness. However, the country's long-term prospects remain bright. That will be especially true if export earnings are reinvested into infrastructure, people, and other things — and if Sino-US relations remain strained.

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