Biden finds a new friend in Vietnam as American CEOs look for alternatives to Chinese factories

President Joe Biden goes Sunday to a Vietnam that's looking to dramatically ramp up trade with the United States — a sign of how competition with China is reshaping relationships across Asia.

The president has made it a point of pride that Vietnam is elevating the United States to the status of being a comprehensive strategic partner. Other countries that Vietnam has extended this designation to include China and Russia. Giving the U.S. the same status suggests that Vietnam wants to hedge its friendships as U.S. and European companies are looking for alternatives to Chinese factories.

Biden said last month at a fundraiser in Salt Lake City that Vietnam doesn't want a defense alliance with the U.S., “but they want relationships because they want China to know that they’re not alone” and can choose their own relationships. The president decided to tack a visit to Vietnam on to his trip to India for the Group of 20 summit that winds up Sunday.

With China's own economic slowdown and Chinese President Xi Jinping's consolidation of political power, Biden sees an opportunity to bring more nations — including Vietnam and Cambodia — into America's orbit.

“We find ourselves in a situation where all of these changes around the world are taking place,” Biden explained about the Vietnam trip last month. "We have an opportunity, if we’re smart, to change the dynamic.”

U.S. trade with Vietnam has already accelerated since 2019. But there are limits to how much further it can progress without improvements to the country's infrastructure, its workers' skills and its governance. Nor has increased trade automatically put the Vietnamese economy on an upward trajectory.

Commerce Secretary Gina Raimondo said that the CEOs she talks with rank Vietnam highly as a place to diversify supply chains that before the pandemic had been overly dependent on China. Raimondo has been trying to broaden those supply chains through the Indo-Pacific Economic Framework, an initiative that Biden launched last year.

“Whether it’s Vietnam or Malaysia, Indonesia, India, companies are really taking a hard look at those countries as places to do more business,” Raimondo said. “It is also true that they need to improve their workforce, housing, infrastructure and, I’d say, transparency in government operations.”

Vietnam's economic growth slipped during the first three months of 2023. Its exporters faced higher costs and weaker demand as high inflation worldwide has hurt the market for consumer goods.

Still, U.S. imports of Vietnamese goods have nearly doubled since 2019 to $127 billion annually, according to the Census Bureau. It is unlikely that Vietnam, with its population of 100 million, can match the scale of Chinese manufacturing. In 2022, China, with 1.4 billion people, exported four times as many goods to the U.S. as did Vietnam.

There is also evidence that China is still central to the economies of many countries in the Indo-Pacific. A new analysis from the Peterson Institute of International Economics found that countries in IPEF received on average more than 30% of their imports from China and sent nearly 20% of their exports to China. This dependence has increased sharply since 2010.

White House national security adviser Jake Sullivan saw an opening to broaden the U.S. relationship with Vietnam when one of its top officials, Lê Hoài Trung, visited Washington on June 29.

After talking with Trung, Sullivan walked back to his office and decided after consulting with his team to issue a letter to the Vietnamese government proposing that the two countries take their trade and diplomatic relations to the highest possible level, according to an administration official who insisted on anonymity to discuss the details.

Sullivan picked the issue back up on July 13 while traveling with Biden in Helsinki, speaking by phone with Nguyễn Phú Trọng, the general secretary of the Communist Party of Vietnam.

At a fundraiser in Maine a few weeks later, Biden went public with the deal to a group of donors assembled in a barn.

“I’ve gotten a call from the head of Vietnam, desperately wants to meet me when I go to the G20,” Biden said. “He wants to elevate us to a major partner, along with Russia and China. What do you think that’s about?”

To answer Biden's question, it's all about anxieties concerning an expansive and assertive China, according to Gregory Poling, director of the Southeast Asia Program and Asia Maritime Transparency Initiative at the Center for Strategic and International Studies, a Washington-based think tank.

Vietnam is “sending a pretty loud political message that they are worried enough about Beijing that they’re willing to elevate the U.S. relationship formally to the highest level that they have in their system,” Poling said on a call with reporters about the trip.

While a simple change in status might seem trivial to many U.S. voters, Poling said it was a significant move by a communist country that shares a border with China.

“For Vietnam, a communist state with a pretty rigid kind of Leninist hierarchy of diplomatic relations, this stuff actually matters,” he said.