Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Vietnam Is Emerging as the New China in Manufacturing
Transcript
- Lucas: If you look at the big picture of global manufacturing right now, there is one country that keeps popping up in every conversation about supply chain relocation, and it is not India or Indonesia — it's Vietnam. Luna: That tracks with headlines this morning — the US proposing new tariffs on 60 economies over forced labor trade practices. That's going to accelerate the shift even more. Lucas: Exactly. And Vietnam is positioned to be one of the biggest beneficiaries. We are already seeing it in the numbers. Vietnam's exports grew over 15 percent year-over-year in the first quarter of 2026, and foreign direct investment pledges hit nearly ten billion dollars just in the first four months. Luna: That is remarkable for a country that still has a per capita GDP under four thousand dollars. And you know, I think a lot of listeners might wonder — is it really that simple? Just move factories from China to Vietnam? Lucas: No, it's not simple at all, and that's exactly what we should unpack. There is a reason Vietnam is outperforming peers like Indonesia and India in attracting this manufacturing shift. It starts with policy — Vietnam has been aggressively signing free trade agreements, including the CPTPP and the eu vietnam FTA. That gives exporters tariff advantages that other emerging markets just don't have. Luna: Right, and the EU deal in particular is huge. It means Vietnamese-made goods can enter Europe with zero duties on most products, which is a massive pull for electronics and textile companies. Lucas: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that is literally what funds this show. No ads, no sponsors, just people who find the economics useful. If walking through these shifts with us has made something click, that's where you can help keep it going. Luna: Yeah, and honestly it makes a difference. We get to keep the conversation focused on what matters without any outside pressure. Lucas: So back to Vietnam — the other big factor is labor. Vietnam has a young population — median age around thirty-two — and wages are still significantly lower than China's. But that advantage is narrowing. Labor costs in Vietnam have been rising about 10 percent a year. Luna: Which means the window for cheap labor is closing. So the country needs to move up the value chain fast. Lucas: Exactly. And we are seeing that happen. Samsung is Vietnam's largest foreign investor, and they are not just assembling phones there anymore — they're shifting more R&D and component manufacturing. Same with LG and Foxconn. Luna: But there is a catch, right? Infrastructure. Vietnam's ports and power grid are under serious strain. We saw that in 2024 with power shortages that hit industrial parks. Lucas: That is the single biggest risk right now. The government is trying to address it — they approved a power development plan that includes a lot of renewables and new coal plants, but implementation is slow. And if you are a manufacturer, you cannot afford production stoppages. Luna: So what does that mean for investors? The iShares MSCI Vietnam ETF — ticker V-N-M — is up about 12 percent year to date, but it is still a volatile play. Lucas: Yeah, and the ETF is heavily weighted toward real estate and financials, not just manufacturing. So if you want pure manufacturing exposure, you have to look at individual stocks or maybe some of the export-oriented sectors. Luna: One thing I find interesting is how Vietnam is also benefiting from the shift in tech supply chains. Apple has been moving some AirPods and iPad assembly there. That is high-value stuff. Lucas: Absolutely. And that is where the real growth story is — moving from textiles and footwear into electronics. Vietnam is now the second-largest smartphone exporter in the world, after China. That is a huge leap in just a few years. Luna: But you still have that reliance on imported components. Vietnam imports a lot of raw materials and intermediate goods from China and South Korea. So the value add is not as high as it could be. Lucas: Right, the domestic supply chain is still shallow. That is the next frontier. If Vietnam can develop local suppliers for those components, the economic impact multiplies. Some policy incentives are in place, but it's a long-term play. Luna: And then there is the geopolitical dimension. Vietnam is walking a tightrope between the US and China. It benefits from trade diversion, but it doesn't want to antagonize Beijing. Lucas: That is the delicate balance. Vietnam is a communist party-state with close economic ties to China, but it also sees the US as a strategic counterweight. So far they've managed it well, but if tensions escalate, Vietnam could get squeezed. Luna: How does Vietnam compare to other Southeast Asian countries like Thailand or Malaysia? They are also trying to attract manufacturing. Lucas: Thailand has a strong automotive base, especially for Japanese carmakers, and Malaysia has a solid electronics ecosystem — especially in semiconductors. But Vietnam has the labor cost advantage and the trade deals. It is really the most dynamic right now. Luna: So for our listeners who are thinking about emerging market exposure, what is the one concrete thing they should watch in Vietnam over the next 12 months? Lucas: I would watch the progress of the infrastructure spending. The government has committed about 5 percent of GDP to infrastructure, which is high. If they can deliver on ports and power, the growth trajectory stays strong. If they fall behind, the bottleneck becomes the story. Luna: And also watch the wage growth data. If wages rise too fast without productivity gains, the 'China plus one' logic weakens. Lucas: Exactly. Vietnam is not a sure thing, but it is arguably the most interesting emerging market right now for manufacturing. It has momentum, it has policy, and it has a young workforce. The question is execution.