Vietnamese President To Lam’s first state visit to China since taking office underscores the strategic importance Hanoi attaches to Beijing as it balances a supply chain reshuffle by both the U.S. and China, according to analysts.
Lam and Chinese President Xi Jinping agreed to "promote an equal and orderly multipolar world and a universally beneficial and inclusive economic globalization" during their meeting, said Chinese Foreign Ministry Spokesperson Mao Ning on Wednesday's press briefing in Beijing.
Lam wrapped up his three-day visit to China on Tuesday after meeting Xi and issuing a joint statement agreeing to expand their bilateral ties including trade. On Monday, they signed 14 documents including ones on industrial and financial cooperation.
Mark Kenney, director of the Wahba Institute for Strategic Competition at the Wilson Center in Washington, said Lam’s choice to visit China first after taking office earlier this month is significant as the U.S. and China are “both at the highest level of Vietnam’s diplomatic relations.”
The U.S. and Vietnam elevated their ties to a comprehensive strategic partnership last September. China and Vietnam upgraded their relations to that level in 2009.
China is Vietnam’s largest trading partner, with their trade last year totaling $172 billion; whereas trade between the U.S. and Vietnam accounted for about $125 billion.
Investment from China and Hong Kong in Vietnam exceeded $8.2 billion in 2023 for more than 6,600 projects. In contrast, investment from the U.S. accounted for $500 million the same year.
That figure may change as Vietnam in recent years has become a premium site for U.S. companies seeking to expand their businesses or relocate their manufacturing supply chains from China.
In March of last year, Hanoi welcomed several U.S. companies, including Boeing, SpaceX, Pfizer and Amazon. Retail giants Zara and H&M, as well as Nike and Adidas, relocated their production factories from China to Vietnam.
U.S. companies have been acting to guard against supply chain disruption, especially since the COVID-19 pandemic, and to protect against Beijing’s coercive economic practices that G7 countries vowed to counter for the past two years.
But the U.S. and Western supply chain shift has stimulated China to reshuffle its manufacturing supply chain networks to Vietnam as well.
“The PRC is sidestepping U.S. tariffs by shipping intermediate goods from the PRC to countries in Southeast Asia, including Vietnam, to be repackaged for export to the U.S. after various degrees of in-country processing,” the Wilson Center’s Kennedy said.
In May, the U.S. increased tariffs on $18 billion worth of goods imported from China to protect American industry.
“Hanoi’s strategy centers on securing its position as a key player in global supply chain while maximizing its economic and security benefits,” said Shay Wester, the director of Asian Economic Affairs at the Asia Society Policy Institute.
“As China seeks to solidify relationships across the developing world, Vietnam is becoming increasingly strategic in the broader U.S.-China economic rivalry” and essential for “ensuring that Vietnam remains a critical partner amidst the ongoing reconfiguration of global supply chains.”
However, Vietnamese made products containing parts imported from China have increasingly been under U.S. scrutiny.
In August of last year, the U.S. determined that solar panel manufacturers in Southeast Asian countries, including Vietnam, have circumvented U.S. trade rules by exporting products containing Chinese-sourced materials subject to U.S. tariffs.
“This example shows how deepening economic ties between Vietnam and China can bring additional risk to economic ties with the U.S.,” said Robert Walker, research associate at the Lowy Institute’s Indo-Pacific Development Center.
“It is plausible in the future [that] economic ties could become more strained due to the growing presence of Chinese companies in Vietnam, but this is not a major concern at this time,” Walker said.
Vietnam’s heavy reliance on Chinese imports, such as steel, plastic and electronic parts critical for manufacturing finished products, could pose risks to its economy, analysts said.
“This trade dynamic has widened Vietnam’s trade deficit with China to $50 billion in 2023, a nearly 50% increase over the last five years,” Wester said. “This highlights the complexities of Vietnam’s rapid industrialization, where its integration into global supply chains has been fueled by, and remains tightly linked to, Chinese imports.”
Kennedy said, “A sounder path for Vietnam is to develop its own manufacturing capabilities that rely on supply chains from a diversified group of nations” other than China.
According to Alice Ba, acting chair of the political science and international relations department at the University of Delaware, Vietnam may have doubts over U.S. economic commitments.
“There are questions about how future domestic politics and also U.S. human rights concerns might affect U.S. economic commitment to Vietnam,” Ba said. “Human rights concerns, for example, may have factored into the U.S. decision” rejecting Vietnam’s request to be designated as market economy by the U.S.
The U.S. earlier this month denied the request, saying the Vietnamese government’s involvement in its economy distorts prices and costs in ways that are unfavorable to the U.S.
