Updates on US investments in Vietnam, a Surprisingly Fruitful Partnership

Vietnam happens to be one of the United States' biggest business partners in the Southeast Asian region. US investments in Vietnam is expected to continue growing.

Vietnam happens to be one of the United States’ biggest business partners in the Southeast Asian region. The two countries have accomplished several milestones together since the mid-1990s and billions of dollars have been invested in postwar reforms. With the recent visit of the Vietnamese Prime Minister, Pham Minh Chinh to the U.S.-ASEAN Special Summit, investments in Vietnam shall upgrade from a comprehensive to a strategic partnership. It will further give a boost to the country’s economy as well as its global presence. 

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Free Trade Agreements with the U.S.

Vietnam entered into a Bilateral Trade Agreement (BTA) in 2000 with the United States which was enforced in 2001. This culminated into Vietnam’s inclusion in the WTO in 2007. Being a member of the Association of South East Asian Nations (ASEAN), Vietnam is also bound to make contributions toward making this region lucrative for business as per the clauses of the ASEAN Free Trade Area (AFTA). 

Economic Statistics on trade between the US and Vietnam

Today, Vietnam and the U.S. are dependent on each other for meeting their respective markets’ demands. Here is an overview of the trade in goods and services industry between these two countries in the year 2020:

CountryTotal Trade (A+B)Exports (A)Imports (B)Trade DeficitTrade Surplus
USUSD 92.2 billion USD 12.1 billionUSD 80.1 billionUSD 68 billion0
VietnamUSD 89.5 billion USD 9.9 billionUSD 79.6 billionUSD 69.7 billion0

As per a report released by the Department of Commerce, the trading in goods and services sector in the country created approximately 65,000 jobs in the year 2019. 

Exports from the US to Vietnam

Vietnam was on the 28th position of the list of the largest goods American export market in 2020. The American goods exports to Vietnam in 2020 were 167% more than in 2010.  

•    The top few categories of export (2-digit HS) in 2020 were:

Electrical machineryUSD 2.1 billion
Cotton USD 1.2 billion
PlasticsUSD 544 million
Food waste & Animal feedUSD 484 million
MachineryUSD 473 million

•    The total agricultural exports made by the U.S. to Vietnam summed upto USD 3.4 billion in 2020. The most prominent export categories were:

Cotton USD 1.2 billion
Soybeans USD 425 million
Distillers grains USD 284 million
Dairy products USD 185 million
Other feeds, meals and foddersUSD 155 million

In 2020, the American exports of services to Vietnam were approximately USD 2.2 billion 79% more than 2010. Major services exported from the U.S. to Vietnam were in technology, transportation and travel and other services sectors.

Imports from Vietnam to the US

In 2020, Vietnam was the 6th largest importer of goods to America. The sum of total goods imports to the U.S. from Vietnam amounted to USD 79.6 billion, 19.8% more than in 2019 and 436% up from 2010. These imports were almost 3.4% of the total U.S. imports in 2020.

•    The most important categories (2-digit HS) in 2020 were: 

Electrical machinery USD 27 billion
Furniture and bedding USD 9.9 billion
Knit apparelUSD 7.1 billion
Machinery USD 6.8 billion
Footwear USD 6.5 billion

source

•   In 2020, the U.S.’s import of agricultural goods from Vietnam was USD 2.1 billion. Vietnam became the 20th largest supplier of agricultural imports. The most popular categories of imports are :

Tree nutsUSD 1.1 billion
Unroasted coffeeUSD 275 million
SpicesUSD 203 million
Sugars, sweeteners, beverages basesUSD 71 million
Dog and cat foodUSD 70 million

source

In 2020, imports of services from Vietnam to the U.S were around  USD 461 million. It was 62.9% less than 2019, but 27% more than 2010 levels. Prominent import services were in transportation and tourism, and management and professional services sectors.

Trade Balance

According to the USTR the trade deficit in goods that the U.S. has with Vietnam was worth USD 69.7 billion in 2020, 25.3% more than 2019. However, it had a surplus of USD 1.7 billion in the service sector in 2020.

RELATED: A Summary of Vietnam’s 14 Most Important Free Trade Agreements

US FDI contribution to Vietnam’s economy

After the remediation measures taken in 1995 and after joining the WTO, Vietnam has drawn many foreign investors, especially from the United States. Its foreign direct investment in Vietnam has increased from USD 1 billion in 2011 to USD 2.6 billion in 2019. In the aftermath of the trade war with China since 2017 many U.S.-based firms are flocking to Vietnam. Apart from its strategic geographical leverage, the country relies on its highly qualified and skilled workforce to draw in more funds. Thus, it is a direct beneficiary of the ongoing trade war between  U.S. and China.

In order to increase U.S. investment, the country has implemented several plans and policies to augment the investments as reported by the State Department’s 2020 Investment Climate Statement on Vietnam. According to Resolution 55 issued by the local government, it plans to lure foreign investors by easing regulations and increasing its bureaucratic efficiency.

Moreover, in 2019 with the passing of the Securities Law, the government has taken measures to lift the limits of foreign ownership. It has introduced the Labor Code which makes labor contracts flexible. Being one of the few countries whose economy achieved a 2.9% growth rate during the recession period of 2020, Vietnam’s resistance to the pandemic makes it a popular investment alternative amongst foreign investors.

An area that American investors need to be wary about in this country could be its pervasive cybersecurity regulations which aim to curtail free speech. Although this law was approved in 2019, it is yet to come into effect. The new cyberspace will provide restricted access to the internet which will be an issue for those companies that fall back on uninhibited access to it.

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Vojtech Zehnalek

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Vojtech Zehnalek, MSc.

Vojtech Zehnalek is designated the Business Expansion Manager and specialises in providing complex advisory to foreign companies expanding to Indonesia. He graduated from Economics and International Trade from the University of Economics in Prague, the Czech Republic, and he also earned a Business Degree at the Vlerick Business School in Belgium.