Vietnam has surpassed Japan to become China’s third-largest export destination for the first time, marking a significant shift in global trade patterns.
This transformation is largely driven by US tariffs, which are compelling companies to find new suppliers outside of China while still relying on Chinese manufacturers for essential components.
Record exports to Vietnam fuel supply chain diversification
Data released by China’s customs administration on Monday reveals that China’s exports to Vietnam surged almost 18% in 2024, reaching a record $162 billion.
This surpasses the $152 billion in shipments to Japan, which had previously held the third-largest spot.
The growth in exports to Vietnam has largely been fueled by a surge in shipments of parts that are then assembled and exported to the US and other countries.
Eight of the ten fastest-growing exports were electronics components, including screen modules and computer memory, according to Chinese data through November last year.
Vietnam benefits from diversified supply chains
While the rerouting of trade may increase costs for businesses and consumers, it has proved to be beneficial for Vietnam.
The Southeast Asian nation has seen a surge in investment as businesses seek to diversify their supply chains away from China.
Leading electronics manufacturers such as Samsung Electronics Co., Luxshare Precision Industry Co., and Hon Hai Precision Industry Co. have invested billions in Vietnam in recent years to assemble products like AirPods and MacBooks.
“We’ve seen more and more companies moving from China to Vietnam to avoid the future tariff risk,” Bloomberg quoted Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises, adding that this has significantly increased exports to the country.
AI boom and export restrictions drive investment
The boom in artificial intelligence (AI) and US export restrictions on AI chips have similarly boosted investment in Vietnam while maintaining China’s relevance in the supply chain.
Hon Hai began manufacturing Nvidia’s AI graphics cards at its Vietnamese subsidiary last year, sourcing key components such as integrated circuits and printed circuit boards from China, according to a Bloomberg report which quoted data from NBD, a private customs data provider.
The majority of the finished products were then shipped to American customers, driving up Vietnam’s trade surplus with the US to record levels in the year through November.
Potential challenges for Vietnam under a Trump administration
This surge in Vietnam’s trade surplus with the US could potentially put the country in the crosshairs of President-elect Donald Trump, who has expressed a need to balance trade with Vietnam and has previously referred to it as a trade “abuser.”
The US has already begun pushing back against this trend.
The Biden administration imposed tariffs on solar panels manufactured in Vietnam and three other Southeast Asian nations late last year.
Most of the panels were produced by Chinese companies that had invested in those countries, partially to circumvent US tariffs.
“From what Trump has said before and with his ‘America First’ policy, we may see higher tariffs and other trade challenges such as technical barriers this year,” Mai said.
But we also believe that the Trump administration, same as the Biden administration, would also recognize the importance of Vietnam in their foreign policy and how the two markets can benefit from each other.
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