U.S., Vietnam: Trade ties and a China buffer

Currently, China's size and skill greatly surpass those of Vietnam as a center of production. Yet the incentives currently offered by the Vietnamese government to increase incoming foreign direct investment show an intense focus on the economy, not unlike China's actions in the 1980s. Asian countries, including Taiwan and Japan, also have actively increased their investment in Vietnam, in their case out of fears their respective political tensions with Beijing could harm their economic relationships with China.

As more sophisticated manufacturing operations begin to open in Vietnam from the likes of IBM, Intel Corp., Panasonic and Samsung, the country will only increase its manufacturing and production acumen and its competitiveness with China. During President Triet's visit to the United States, a number of new corporate deals are expected to be confirmed. These will include deals between Chevron Corp. and Vietnam Petrochemical, Microsoft Corp. and the Bank for Agriculture and Rural Development of Vietnam (Agribank), and a possible order for Boeing Co. aircraft by Vietnam Airlines.

Increased trade ties with Vietnam also will give the United States additional bargaining power in its trade relationship with China, since as major businesses begin to diversify their production locations, they will slowly become less reliant on Chinese manufacturing. Washington thus can apply more pressure on Beijing regarding trade issues such as intellectual property rights and currency reform.

At the same time, increased ties with Vietnam will help shield Washington from any backlash from U.S. businesses either based in or producing in China. While not replacing China, the existence of a supplemental avenue for foreign investment in Vietnam provides an added measure of security to investors should Chinese political or economic tensions -- either domestic or international -- get out of hand.

Source: Stratfor, VentureOutsource.com

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