The United States see Vietnam as a potential partner in semiconductor production as it seeks partners to diversify away from its dependence on Taiwan for microchips.

US President Joe Biden is due to arrive in Vietnam on September 10 immediately following attending the G20 summit held in India in the days before. Setting up semiconductor production in Vietnam is expected to be high on his agenda as the US seeks to “freindshore” more production of chips and put them out of China’s reach.

China accounted for 40% to global chip production in 2019, and Taiwan, accounting for 27%. Turning its attention to Vietnam, with its promise in the semiconductor chip sector, Biden aims to elevate bilateral trade relations during his visit scheduled for September 10 as Vietnam gradually establishes itself as an alternative manufacturing destination to China.

Vietnam-US relations have been warming as Vietnam relations with China slowly sour. Relations have been strained ties with its fellow communist neighbour since the 1978 Vietnam-China conflict marked a turning point in their relationship. Until then, China had supported North Vietnam and its communist leadership against South Vietnam and the US. Additionally, Vietnam's membership in the Association of South-East Nations (ASEAN) further aligned the country with US-friendly policies. Relations between the US and Vietnam have been on an upward trajectory since the 1990s.

However, despite US eagerness to establish Vietnam as a strategic partner in the semiconductor industry, challenges persist. Both China and Vietnam are leading players in the backend of chip assembly, but Vietnam lacks manpower.

The US is prepared to transfer chip manufacturing technologies to Vietnam to bolster its production, yet the country faces a shortage of highly skilled chip engineers. Currently home to only 5,000 to 6,000 engineers, Vietnam's demand for engineers is projected to reach 20,000 within five years and 50,000 by the decade's end. Meeting this surging demand will pose a considerable challenge.

Notably, the US is especially attracted to Vietnam's semiconductor industry due to the country’s deposits of rare minerals essential for chip production, although these deposits are as yet largely unexploited.

Vietnam's annual chip exports to the US amount to half a billion dollars. The US Chips Act and private investments from American chip designing companies could inject $500mn into the sector.

The US enthusiasm for investing in Vietnam as a means to counter China's dominance is part of its Indo-Pacific strategy, aimed at containing China's influence. With its open-ended economic system and a population of 100mn, Vietnam emerges as a potential candidate. Unlike many regional neighbours susceptible to Chinese trade influences due to political and cultural reasons, Vietnam remains relatively insulated.

In addition to Vietnam, the US is also courting India for potential semiconductor manufacturing ventures. However, India's own burgeoning digital and electronics economy makes it a significant consumer of semiconductor goods. The US seeks offshore partners that can serve as supply bases, and Vietnam, given its cost-effectiveness compared to India, presents an attractive option. Despite existing challenges, it appears that the US is determined to position Vietnam within the crucial chip manufacturing landscape.