Posted by Stuart Schaag and Barbara Banas
July 25, 2016
Before you keep reading, let’s conduct an experiment. Open another page on your internet browser and type the word “Viet” into the search bar. What was the first term that came up from the autofill function? It wasn’t “Vietnam”, was it? More than 40 years have passed since the end of the U.S. conflict with Vietnam, yet our old ghosts still linger, revealed in our internet algorithms. As Pulitzer Prize winning author Viet Thanh Nguyen stated, “Vietnam is a country and not a war,” a fact that many U.S. companies are learning as they seek out new export markets. We like to think that Vietnam is not a war and not just a country, but an opportunity.
Since the United States and Vietnam renewed diplomatic relations in 1995, our commercial relationship has grown exponentially. The United States is now Vietnam’s largest export market and a major source of foreign direct investment. Conversely, in 2015, Vietnam was the United States’ fastest growing export market (up over 23 percent from 2014) among new Trans-Pacific Partnership (TPP) partners, demonstrating the increasing demand for U.S. technologies and goods. Moreover, in Asia, Vietnam’s average annual economic growth rate of well over five percent over the past 25 years has been second only to China’s. After rebounding from the doldrums of the last decade’s global financial crisis, Vietnam has regained its luster as an investment destination and lucrative export market. Last year closed with the economy back in full swing, buoyed by GDP growth of over six percent. What does growth like this mean for Vietnam’s future? The recent joint World Bank and Ministry of Planning and Investment study, Vietnam 2035, states that “growth rates in this range would produce by 2035 an upper-middle income country on the cusp of high income — at the level of Malaysia or the Republic of Korea in the mid-2000s.”
Vietnam offers many opportunities to U.S. exporters. With a population of over 90 million, Vietnam is filled with young, tech-savvy consumers (median age is just 29). According to a 2013 study by the Boston Consulting Group, Vietnam represents the fastest growing middle class in the region. In fact, Vietnam’s middle class is predicted to double by 2020, exceeding 30 million consumers. We are already experiencing the benefits of this rising middle class. In 2015 there were over 18,700 Vietnamese students studying in the United States. That same year, over 85,000 Vietnamese travelers visited the United States, representing the largest growth in Asia (up over 30 percent from 2014). Vietnam is now ranked among Asia’s top five retail markets. Consumer confidence is among the highest in Asia, where more than 90 percent of residents in Ho Chi Minh City consider themselves to be part of the middle class, a response rate higher than in Singapore, Jakarta or Kuala Lumpur.
That is Vietnam today. As a member of the Trans-Pacific Partnership (TPP), the Vietnam of tomorrow will be further transformed. There is no doubt that Vietnam stands to gain the most out of the 12 TPP member countries. According to several economists’ estimates, the TPP Agreement could increase Vietnam’s exports by about 30 percent by 2025 and raise GDP by more than 10 percent. Why should U.S. exporters care? Because a more prosperous Vietnam means a better market for American products. The TPP will further open Vietnam’s market to U.S. companies, as the country has agreed to reform its state-owned enterprises, adopt stricter environmental standards, and permit workers freedom of association. Upon entry into force, 88 percent of U.S. non-agricultural exports to Vietnam will be duty free (our handy FTA Tariff Tool can help you identify how your products will benefit).
Let’s look at cars as an example. Under the TPP Agreement, 98.1 percent of U.S. auto parts exports will be eligible for immediate duty-free treatment in the new TPP markets, and all remaining tariffs will be eliminated over time. Considering that automotive sales in Vietnam were up 40 percent in 2014 and the ownership rate is still among the lowest in Asia, this is a great example of how opportunities created by Vietnam’s growth, linked with the implementation of the TPP, make Vietnam such an exciting market for American exporters.
Americans visiting Vietnam are often astounded by the chaos of this country’s traffic. They stand speechless as a never–ending sea of motorcycles seamlessly weaves in and out of traffic, seemingly oblivious to those behind them. They point incredulously at the scooters driving into an intersection without a second glance to see if the way is clear. How can this be? The unwritten rule of the road in Vietnam is: the driver in front always has the right of way. This driving culture is but a window on the Vietnamese ethos — always look forward. The young Vietnamese you will encounter in the cafes, clubs and streets of Hanoi or Ho Chi Minh City are excited for what the future holds. Born long after the war ended, they see America as their best ally and a country to emulate. They believe their future is linked to ours, and hope that we believe the same.
About the Authors: Stuart Schaag is a career Foreign Service Officer with the U.S. Commercial Service currently serves as Senior Commercial Officer at the U.S. Embassy in Hanoi. Barbara Banas is an International Trade Specialist with the Office of ASEAN and the Pacific Basin, where she covers Vietnam. She is based in Washington, D.C.
Editor’s Note: This entry originally appeared on Tradeology, the International Trade Administration’s Blog.