Raising the position if Vietnam does not want to become a new "assembly factory"

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“Bamboo diplomacy” - Raising Vietnam's position after nearly 40 years of Renovation

How do you evaluate the changes in US policy when Mr. Donald Trump officially returns to the White House from early 2025?

Donald Trump, who served as the 45th President of the United States, will return to the 47th presidency in January 2025 with a commitment to reinvigorate protectionist economic policies, focusing on a new wave of tariffs targeting import goods from China and other countries. This is also a continuation of the “America First” trade policy that he implemented during his 2017-2021 term.

Trump’s tariff strategy began in 2018 with a 25% tariff on US$50 billion worth of Chinese goods, escalating the trade war. The tariff could be raised from 10% to 20% on import goods in general and up to 60% on goods from China to encourage domestic production, protect intellectual property and reduce dependence on international supply chains.

At the same time, the Trump administration's policies also pay special attention to trade protectionism. During his previous term, Mr. Trump was particularly sensitive to countries with trade surpluses with the US, including Vietnam. At the end of Mr. Trump's previous term, the US trade deficit with Vietnam was nearly US$ 70 billion. Currently, this trade deficit is even higher, reaching US$ 86.2 billion for the first 10 months of 2024.

So if Donald Trump takes a rigorous treatment on countries with large trade surpluses with the US, with an even stronger version of "America First" than before and continues to impose widespread import tariffs, goods from Vietnam will also be significantly impacted.

Asia is heavily dependent on global trade, and not only China but also Singapore, Malaysia and Vietnam are vulnerable. Many countries are concerned that, with Donald Trump’s tough stance on China, countries and businesses with large investments from China, including Vietnam, may face trade restrictions.

What are the opportunities for Vietnam in the above context, Madam?

High tariffs on Chinese goods may cause US enterprises to move production back home or shift part of their supply chain to other countries. With Mr. Trump's tough foreign policy, the trend of shifting supply chains will be even stronger. This is an opportunity for Vietnam.

In the context of trade tensions and geopolitical conflicts that increase transaction and transportation costs, Southeast Asia (including Vietnam) and India are becoming important alternative destinations because they are not only large markets but also have more competitive labour costs.

Vietnam is particularly attractive thanks to its low labour costs and open, integration policies that are favourable to foreign investment. This makes Vietnam an ideal destination for enterprises looking to diversify production and reduce dependence on China.

When international corporations move their supply chains and manufacturing plants to Vietnam, domestic enterprises have great opportunities to expand cooperation, participate deeply in global supply chains and enhance their position. Great opportunities include providing products and services to large corporations, especially being able to participate in green and sustainable value chains. This will help Vietnamese enterprises access advanced skills, management methods and exploit production opportunities according to international standards.

In your opinion, to seize this opportunity, how do Vietnamese enterprises need to prepare and change?

The paradox is that the proportion of export based on processing and assembling from imported raw materials by Vietnamese enterprises is still increasing, from US$ 3 billion (equivalent to 21.44% of total export turnover) in 2000 to US$ 171.5 billion (equivalent to 48.01%) in 2022. Meanwhile, this ratio is only 13.51% for China, 28.96% for Thailand, 34.25% for Singapore and 26.38% for Malaysia. Notably, these countries all recorded a decrease in the ratio over the years, contrary to the trend of Vietnam.

According to the “smiling curve” model, Vietnamese enterprises focus on the processing and assembly stages – the last stage of the “curve” and create low added value. Moreover, processing and assembly enterprises face strict requirements from raw material suppliers, distributors and brands, weakening their ability to negotiate in the value chain. In addition, most input materials are imported, resulting in a low ratio of domestic value added to total export output.

Currently, low-tech industries account for about 65-70% of the manufacturing sector in Vietnam, compared to only 18% globally. This keeps the added value from exporting low and Vietnamese enterprises still limited to the lowest position in the value chain. Therefore, if Vietnamese enterprises do not promptly change, the trend of shifting supply chains can cause a problem where the proportion of low-value industries will continue to increase.

As a result, Vietnam risks becoming a new “assembly factory” of the world instead of enhancing its position and value in the global supply chain.

Therefore, the core issue is that Vietnam needs to improve its position in the global value chain. Vietnamese enterprises need to participate in the production of more capital-intensive products or vertically integrate, to improve competitiveness and create added value for the country.

If enterprises cannot “upgrade” themselves, the Government needs to have support measures to help them move further up the global value chain. It is important to improve management capacity and labour quality to meet the needs of large corporations and investors. The next solution is to invest in developing human resources for industries.

Thank you!