The upgrading of the U.S.-Vietnam relationship to a “Comprehensive Strategic Partnership” represents a remarkable turnaround in collaboration between the two nations.
The new partnership elevates the relationship between Vietnam and the United States to a level previously enjoyed by only four other nations: Russia, China, India and South Korea. The White House noted the partnership is for the purposes of peace, cooperation and sustainable development.
The announcement came at the end of a two-day visit by President Biden to Vietnam, and reflects the United States’ desire to deepen economic and political relations in a time of rising geopolitical risk. The timing was particularly remarkable since he had chosen not to attend the ASEAN summit that had been held just days before in Jakarta, Indonesia.
President Biden said “We’re deepening our co-operation on critical and emerging technologies particularly around building a more resilient semiconductor supply chain” during a joint press conference held with the General Secretary of the ruling Communist party of Vietnam, Nguyen Phu Trong.
A “comprehensive strategic partnership” is the highest level of partnership offered by Vietnam and reflects the desire of both governments to further diversify supply chains whilst boosting investment.
The U.S. also views greater collaboration with Hanoi as critical to securing U.S. strategic interests in the South China Sea amidst an increasingly febrile atmosphere in the waters surrounding Vietnam and its ASEAN neighbours.
Vietnam is seen as key to the U.S. “de-risking” strategy which aims to diversify U.S. supply chains towards countries it views as allies, in a process known as “friendshoring”. U.S. Treasury Secretary Janet Yellen explained when visiting Hanoi in July that the strategy was aimed at diversifying supply chains amongst many trusted partners to act as a bulwark against global shocks.
Vietnam was Asia’s fastest-growing economy in 2022 having moved away from a centrally-controlled economy to one that is much more open to private investment. The U.S. is its largest trading partner, with Vietnam accounting for the seventh largest source of imports to the U.S. behind China, Germany, Japan, South Korea, Canada and Mexico.1 So far this year, Vietnam has exported goods worth US$62.8 billion to the U.S.
The U.S. is becoming the largest exporter of poultry meat to Vietnam (accounting for 34 per cent of imports) and the second largest beef exporter after Australia. The U.S. has opened the door to many Vietnamese products and Vietnam is targeting boosting the export of wood products and seafood.
In the technology space, companies among the Big Four in tech have enhanced their operations in the country. The agreement includes a new partnership to “support resilient semiconductor supply chains for U.S. industry, consumers and workers.” The chipmaker Amkor Technology has set up a factory near Hanoi that the White House said was due to begin operations in October. US$2 million will be made available for training workers in the semiconductor industry.
The Vietnamese company AMI AC Renewables will join up with Honeywell to develop the first battery storage system in the country in the southern coastal province of Khánh Hòa. The partnership will also give a boost to artificial intelligence (AI) projects involving Microsoft and Nvidia.
The partnership is also important to Vietnam’s export prospects. Exports from Vietnam accounted for only four per cent of the U.S. total import turnover in 2022. Weakening demand globally has meant that Vietnam is currently dealing with its worst factory downturn in a decade, which has dashed hopes that the country would naturally benefit from the diversification of supply chains in the region. Overall exports dropped 10 per cent year-on-year in January through August 2023. Power outages have also disrupted industrial production across a range of industries.
Vietnam can look forward to expanding this through to areas such as computers, agricultural machinery, cars and auto parts. For its part, Boeing announced a US$7.8 billion deal by which it would sell fifty 737 jets to Vietnam Airlines.
There are moves that encourage sustainability with the U.S. promising to fund development of mining rare earths metals. Vietnam has the second-largest deposits of rare earths in the world after China.
Much will depend on how the partnership is carried through in practice, in particular whether Vietnam’s governance structure finds ways to modernise. In a sign of progress for Vietnam, Washington is considering removing the “non-market economy” status of Vietnam, which would offer more trading opportunities for Vietnamese companies.
Overall, the new partnership promises much to both parties, boosting trade and promoting each sides’ strategic interests for what can only be a “win-win”.
As one of the first international law firms to enter the Vietnam market in 1994, Hogan Lovells has deep local knowledge and an integrated international network to help you take advantage of these new opportunities. Whether you’re looking to grow your business through acquisitions or raise capital, protect your brand identity, optimise your supply chains, or resolve international disputes, we’ve got you covered.
With a team of 17 legal professionals across our Hanoi and Ho Chi Minh City offices (including 13 qualified lawyers), we are amongst the largest international law firms with a presence in the country, and can handle a wide variety of substantial matters without sacrificing quality or responsiveness. We have a full-service practice in Vietnam with dedicated corporate, finance, and intellectual property teams ready to help you. Our team in Vietnam is closely integrated within our global network of market-leading international trade lawyers and industry sector specialists, ensuring you receive legal advice to international standards to satisfy your global business needs.
1. U.S. Department of Commerce figures