Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How Vietnam Is Winning the Second Wave of Supply Chain Diversification
Transcript
- Lucas: So there's this narrative that's been running for the last couple of years: Mexico is the big nearshoring winner, India is the services outsourcing champion, and everyone else is just sort of... in the mix. And honestly, that's not wrong — Mexico's share of US imports has climbed. India's IT exports are booming. But there's a country that's been quietly outperforming both of them in a specific way, and it's Vietnam. Luna: Vietnam keeps popping up in trade data, but I feel like we rarely stop to really unpack what's happening there. What's the headline number? Lucas: Let's start with trade flows. Vietnam's goods trade surplus with the US hit about $115 billion last year. That's up from roughly $70 billion in 2020. And it's not just cheap textiles anymore — electronics now account for over 40 percent of Vietnam's exports to the US. The country has basically become the final assembly hub for a huge chunk of Southeast Asian electronics supply chains. Luna: And this is all happening while the dollar's been strong — it's still around 119 on the trade-weighted index, though it's dipped a bit recently. Usually a strong dollar helps countries that export to the US, but Vietnam's currency, the dong, has been remarkably stable. Why hasn't it appreciated more? Lucas: The State Bank of Vietnam has been very active managing the dong. They've kept it in a tight band against the dollar — it's only moved about 1.5 percent over the past twelve months. Compare that to the Mexican peso, which has strengthened significantly, or the Indian rupee, which has been under pressure. That stability is a huge selling point for multinationals trying to plan long-term capital expenditures. You know what your labor and your currency costs are going to look like. Luna: It's interesting — we talk a lot about the 'China plus one' strategy, but for many companies, Vietnam is becoming the 'one'. Lucas: Exactly. And the data on foreign direct investment backs that up. Vietnam attracted over $28 billion in committed FDI in the first half of 2026, which is a record pace. A big chunk of that is going into electronics — Samsung already makes half of its smartphones in Vietnam. Apple has been shifting more AirPods and iPad assembly there. And now you're seeing the next tier: components manufacturing, not just final assembly. Luna: Is that sustainable though? Vietnam's infrastructure is still a constraint. I've read that the power grid had some issues last year during the heatwave. Lucas: That's the real risk. June 2025, there were rolling blackouts in the northern industrial zones — that's where Samsung and Foxconn have their factories. The government has since fast-tracked some power projects, but the demand is growing fast. FDI inflows are growing at roughly 15 percent annually, but power generation is only growing at about 8 percent. That gap is going to create bottlenecks unless they really accelerate investment. Luna: So the opportunity is real, but the infrastructure is the pressure point. And that's where the story gets more nuanced. Lucas: Right. And it's also where you see the difference between Vietnam and, say, Mexico. Mexico has the advantage of proximity and the USMCA trade deal. But Vietnam has a much younger workforce — the median age is about 31, compared to Mexico's 29 — but more importantly, the labor force participation rate is very high, and the literacy rate is over 95 percent. That combination is hard to beat for electronics assembly. Luna: And wages are still lower than China's, but they're rising. Do you see Vietnam losing that cost advantage in the next few years? Lucas: It's already happening — average manufacturing wages in Vietnam have been rising about 8 to 10 percent annually. But productivity is also rising. And more importantly, the value of what they're making is going up. They're not just stitching sneakers anymore — they're assembling circuit boards and making precision components. So even if labor costs rise, the unit economics can still work. Luna: Speaking of sneakers — Nike and Adidas both manufacture a huge share of their shoes in Vietnam. Is that segment still growing, or is it plateauing? Lucas: It's still growing, but more slowly. Footwear and textile exports were up about 6 percent year-over-year in the first quarter of 2026. The real growth is in electronics and machinery — those categories grew over 20 percent. So Vietnam is transitioning up the value chain, which is exactly what you want to see in a developing economy. Luna: It reminds me of the path China took in the 2000s, but compressed into a much shorter timeframe. Lucas: Absolutely. And there's another factor that's helping Vietnam right now: the yuan has weakened against the dollar over the past year. That makes Chinese exports cheaper, which you'd think would hurt Vietnam. But because Vietnam imports so many intermediate goods from China — components, machinery — a cheaper yuan actually lowers their input costs. So there's a natural hedge built into the supply chain. Luna: That's a really good point. So Vietnam benefits from Chinese deflation on the input side, while still being competitive on the output side because of currency management. Lucas: And on trade policy, Vietnam has also been very strategic. It's part of the CPTPP — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — and it has a free trade agreement with the EU. So exporters in Vietnam get preferential access to multiple large markets, not just the US. That diversification of trade agreements is a big structural advantage. Luna: It makes me think about how this connects to the broader conversation we often have on this show about the rewiring of global trade. The regionalization trend is real, but Vietnam seems to be threading the needle between multiple blocs. Lucas: Yeah, and that's why I think the story is more interesting than just 'Vietnam is the new China.' It's not. Its economy is still a fraction of China's — about $450 billion in GDP compared to China's $18 trillion. But for specific industries, especially electronics, it's becoming a critical node. And that's a shift that's been accelerating since the us china trade war really kicked off in 2018. Luna: If these conversations have been useful to you in your work or investing, we should mention that this show is completely ad-free. That's a choice we made from the beginning, and it's only possible because some listeners choose to support it directly. Lucas: Yeah, it's a small thing, but it means a lot to us. If you'd like to help keep these episodes free for everyone, you can find us at buy me a coffee dot com slash fexingo. No pressure, genuinely. It's just a way for those who find value here to make sure it stays accessible. Luna: And we really appreciate it. Now, back to Vietnam — one thing I wanted to ask: how does the recent dip in the trade-weighted dollar affect Vietnam's position? The dollar index went from about 120 to 119.5 recently, and the dong has been stable. Lucas: A slightly weaker dollar is actually a mild positive for Vietnam. It makes their exports slightly more competitive in other markets, not just the US. But the bigger story is that the dong's stability relative to the dollar means that even as the dollar weakens, Vietnam's currency isn't appreciating sharply against other trading partners. So they maintain competitiveness across the board. Luna: There's been some chatter about Vietnam possibly being included in emerging market bond indices. Would that change the investment dynamic? Lucas: It could. Vietnam's government bond market is still relatively small — about $60 billion outstanding — but if it gets included in the JPMorgan or Bloomberg indices, you'd see significant passive inflows. That would help finance infrastructure investment without relying solely on FDI and foreign loans. The government has been pushing for that, but it requires improvements in market accessibility and transparency. Luna: So there's a clear roadmap, but execution is everything. What are you watching for in the next six to twelve months? Lucas: Three things. First, whether the power grid investments actually get built. Second, whether Vietnam can move beyond assembly into higher-value R&D and design — there are early signs with Samsung's R&D center in Hanoi. And third, how the US election cycle might affect trade policy. If tariffs on China increase, Vietnam benefits. But there's also a risk that the US starts scrutinizing Vietnam's trade surplus more closely. Luna: So it's a story of opportunity with a clear set of risks. Makes you think about how many other countries are trying to do the same thing, but Vietnam actually has the momentum. Lucas: Exactly. And that's the takeaway. In a world where trade is rewiring around reliability and speed, Vietnam has positioned itself as a credible, stable alternative. It's not perfect, but it's further along than most people realize. Luna: Great episode. Thanks, Lucas. Lucas: Thanks, Luna. We'll be back soon with another one.