Vietnam—Easing geopolitical risks boost trade and investment outlook

US allegations that Vietnam had been weakening the value of its currency, the dong, to gain trade advantages have been resolved. In April, the US removed Vietnam from a list of nations designated as currency manipulators. Last month, Vietnam agreed to allow its currency to move in line with economic and financial fundamentals. This reduces the risk of US policymakers imposing wide-ranging tariffs on Vietnamese imports. Given the US is Vietnam’s largest export market, this should support continued trade and foreign investment inflows. The current visit to Vietnam by US Vice President Kamala Harris should foster continued positive bilateral relations.

Easing geopolitical tensions come as an intensifying COVID-19 outbreak prompts new lockdowns, threatening the economic rebound and demand for Australian exports in the near term. Factories are operating below capacity in northern provinces, where suppliers for Apple, Samsung and other electronics producers are located. This is resulting in temporary delays to manufacturing and disruption to supply chains, including in footwear, garments and electronics; Vietnam accounts for half of Samsung’s global phone and tablet production.  

Vietnam is Australia’s 12th largest export market, and the Australian Government is seeking to further strengthen bilateral trade. Beyond the pandemic, Vietnam’s growing economy and burgeoning middle-class present significant opportunities for Australian exporters (Chart), including coal, LNG, iron ore, wheat and live cattle. Trade integration, through participation in 13 free trade agreements[1], will drive continued investment in Vietnam's transport and logistics infrastructure, supporting broader demand for resources and increasing access to markets. Services—including education, professional and technical services—are also well positioned to capitalise on these opportunities.

[1] Signed international trade agreements include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership (RCEP), and a bilateral free trade agreement with the European Union, one of Vietnam’s largest export markets.

Fig 4 Australia Exports To Vietnam