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Why US brands prefer sourcing from Vietnam

In recent years the economic ties between the US and Vietnam has been on the rise. Since the US-Vietnam War in 1975, both countries normalized their diplomatic relations on July 11, 1995. The bilateral trade between the US and Vietnam stood at US$77 billion in 2019. Not to mention, the USA has become Vietnam’s largest export market with Vietnam becoming the US’ fastest-growing export market.

This year, both countries marked 25 years of diplomatic relations, with the US reaffirming its support for Vietnam with peaceful resolution of disputes, rule of law, freedom of navigation, and unimpeded commerce among others.

reasons-US-brands-sourcing- Vietnam
Figure: Both countries marked 25 years of diplomatic relations, with the US reaffirming its support for Vietnam with peaceful resolution of disputes, rule of law, freedom of navigation, and unimpeded commerce among others.

War-battered Vietnam is now a fast-growing economy in Asia. Back in 1986, Vietnam launched key economic reforms known as ‘Doi Moi’.

Building a market economy with priority and creating opportunities for private-sector competition. And opening the door for foreign investors.

The US investors started flooding in after a deal was reached in 2001, which aided in lifting numerous non-tariff barriers while lowering tariffs on a diverse range of goods on an average between 3% to 40% including on apparel, agricultural, animal products, and electronics.

Especially the landmark Trans-Pacific Partnership (TPP) – a free trade agreement (FTA) involving ASEAN countries as well as the US and Australia. Vietnam has become one of the main beneficiaries of this FTA, gaining access to the US market.

Vietnam’s geographic proximity with the US, skilled labor, trade agreements, lower wages, and regional connectivity, Vietnam has developed as one of the most preferred alternatives for US manufacturers.

Key US firms such as Apple, Intel, Qualcomm, Universal Alloy Corporation (UAC), Nike, and Key Tronic EMS have now moved production lines to Vietnam due to costs associated with the trade war.

Setbacks undermining the bilateral trade

Although President Trump nullified TPP, nevertheless, the bilateral trade between the countries grew significantly. Which is a cause of worry for the present US administration.

One of the major concern of the US is being a neighbor of China – Vietnam lacks adequate intellectual property protections and food safety regulations, internet and digital economy restrictions, and other serious governance issues.

According to a Bank of America Merrill Lynch study, in 2019, Vietnam’s trade surplus with the US had grown to US$600 million. Prompting concerns from President Trump. Where he was concerned about the trade imbalance with Vietnam.

Not to mention, at the height of the US-China trade war, the United States imposed duties on Vietnamese steel products that originated in China in May 2018.

Before that, in December 2017, the Trump administration-imposed duties on steel products specifically on Vietnam that originated from China as they dodged anti-dumping rules.

And on August 25, 2020, the US Treasury Department expressed that Vietnam manipulated its currency in 2019, a possibility of the US imposing further tariffs on Vietnam.

Vietnam serving its purpose for the US

Amid all this Vietnam holds a good regional value for the US in its stance against China. Vietnam is opposed to Chinese claims in the South China sea. This can be seen in Vietnam’s participation in the Rim of the Pacific (RIMPAC) – a maritime military exercise held twice-yearly by the US.

And the US offered its stake to Vietnam by lifting a ban on legal arms sales to Vietnam in 2016. Since then both countries have been making closer military ties and high-level military exchanges.

US-China trade war creating boom

The US-China trade dispute has had a pouring effect on Vietnam. Vietnam’s exporters have seen a significant rise and demand for their products, especially garments and textiles. Where Vietnam has appeared as a substitute to mass ‘Made in China’ for US investors profiting from China plus one strategy that includes investors shifting or expanding to other countries to surge market access.

With all these ingredients combined, Vietnam became a ‘trade war winner’ and a perfect location to do business and attract investment.

So far, Vietnam’s gains have not been depending on failing US-China ties alone. Vietnam’s skilled and low-cost labor force, infrastructure, stable government, safe environment, and free trade agreements are what US investors are looking at during this volatile time.

This trend is expected to continue for the predictable future. And Vietnam is also well-positioned to capitalize on disrupted supply chains elsewhere due to the COVID-19 pandemic.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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