Made in Vietnam or a backdoor for Chinese exports ?

Vietnam was one of the biggest beneficiaries of the tariffs imposed by Donald Trump during his first term. This time, Vietnam could be among the biggest casualties. Trump’s first term tariffs on China saw America’s trading relationships shift dramatically towards other countries, especially Vietnam and Mexico. America’s trade deficit with Vietnam skyrocketed, reaching US$123 billion last year – three-times its 2018 level.

It’s not just the big trade imbalance. Vietnam is also seen as a major source of indirect Chinese exports to America. That includes pure tariff evasion through the rerouting of Chinese goods via Vietnamese ports but more significantly the heavy use of Chinese parts and components within Vietnam’s exports to the United States.

The Economist magazine cites Vietnam as the key example of how both Trump and Biden have failed to cut underlying trade ties with China. The apparent smoking gun is the high correlation in recent years between Vietnam’s booming exports to America and its surging imports from China.

This argument clearly has validity. But it is also overstated in unhelpful ways. Rather than primarily serving as a backdoor for Chinese exports, Vietnam should instead be seen as playing an important and helpful role in diversifying global supply chains away from China.

We draw on detailed trade data compiled by the Asian Development Bank (ADB) to estimate a more nuanced picture. The below chart shows our estimated breakdown of Vietnam’s imports from China according to the underlying source of value and its uses.

Clearly there’s a lot more going on than just hidden Chinese exports to America. Around 30% of Vietnam’s imports from China are absorbed by Vietnam itself; after all, Vietnam is a rapidly growing economy with rising incomes. A further 17% of Chinese imports reflect value created in other countries that provide inputs to China’s exports. That leaves just over half of Chinese imports as reflecting Chinese value later re-exported by Vietnam itself.

The ADB data does not allow us to directly see how much of this goes into Vietnam’s exports to the United States versus elsewhere. We can, however, make an informed estimate.

Crucially, it is not just Vietnam’s exports to America that have boomed in recent years. Exports to the rest of the world have surged by even more, rising US$89 billion since 2018 compared to US$72 billion for exports to the United States. That means a good chunk of Vietnam’s imports from China will have gone into Vietnam’s exports to the rest of the world besides America. If we assume that the Chinese content going into these exports remained proportionally in line with the pre-2018 pattern, whatever remains must reflect increased Chinese content re-exported to the United States.

This methodology shows exports to the rest of the world have indeed likely absorbed a great deal of Vietnam’s additional imports from China. But it also confirms a big increase in Chinese content indirectly exported to America. This now accounts for about 25% of Vietnam’s imports from China, a big increase on 8% in 2018. Yet that still leaves around three-quarters of Vietnam’s imports from China that can be explained by factors other than hidden Chinese exports to America.

We can also use this to break down Vietnam’s exports to the United States (see next chart). Again, the share of indirect Chinese content has risen substantially, making up 28% of Vietnam’s exports to America in 2022, up from 9% in 2018. However, that leaves the majority (more than 70%) of Vietnam’s exports as reflecting non-China sources – including value produced in Vietnam itself and other countries along the supply chain besides China.

It’s also worth noting that Vietnam has benefitted handsomely, with domestically produced value exported to America having risen by more than 90% since 2018 – in contrast to the common handwringing in Vietnam over the limited domestic benefits from its foreign investment driven export sector.

To be sure, China undoubtedly plays a much larger role in some areas. One important study finds that indirect Chinese imports via third countries are higher in strategic sectors. Last year, America imposed heavy import duties on Vietnamese solar panels for containing excessive Chinese content. That assessment is probably right, given China dominates global solar panel supply chains. And if we focus only on the increase in Vietnam’s exports to America since 2018, rather than the total, the estimated share that reflects indirect Chinese content rises to about 40%.

Chinese manufacturing investment is also pouring into Vietnam. In 2023, announced investments reached almost US$12 billion. In 2024 though, this dropped back to US$3.6 billion. Meanwhile, investment from others has risen to about US$10 billion a year – with South Korea, Taiwan, and Japan collectively investing about US$7 billion annually in recent years. The investment picture thus seems similar to the trade one, suggesting future Vietnamese exports will reflect heavy involvement from Chinese firms but with even more coming from other partners, especially advanced Asia.

What can we conclude? China has clearly played a big role in Vietnam’s booming exports to the United States. But China is not the main story. Vietnam itself, and other supply chain partners, are playing the more important role. Moreover, with the right policies, Vietnam can over time leverage this and increasing investment inflows to move up the value chain, gradually reducing its reliance on foreign inputs, including from China.

Vietnam is, in other words, playing a helpful role in the diversification of US supply chains away from China. The question is whether the Trump administration can see value in this, or whether it is only interested in reshoring manufacturing to America.

By Roland Rajah & Ahmed Albayrak –  The Interpreter / Lowy Institute – March 25, 2025