• Vietnam has upgraded the diplomatic status of the US to that of a “strategic comprehensive partner”—a two-step enhancement over the previous “comprehensive” partnership, elevating the US to the same status as China and Russia in Vietnam’s diplomatic taxonomy.

• Vietnamese officials will plan high-level diplomatic engagement with China in the weeks ahead to limit the risk of a response from the latter, as China continues to influence Vietnam’s foreign policy strongly.

• China’s response is unlikely to include strict punitive measures on Vietnam, as the latter will continue to hold high-level diplomatic meetings to ensure continued mutual political trust. 

• The upgrade for the US will not be a solitary enhancement in foreign relations, and EIU expects Vietnam to elevate relations formally with other diplomatic partners, such as Australia and Singapore, by 2024. 

Vietnam has not been immune to the escalating geopolitical rivalry between the US and China. While the US is an important export market and a cushion against Chinese ambitions in the South China Sea, China remains the main source of essential raw material imports needed to fuel Vietnam’s export-oriented growth. Vietnam’s relations with the US have remained constrained, in part because of the risk of an adverse reaction from China. Until now, this had led to the US remaining categorised as a comprehensive partner, on an equal footing with countries such as Argentina, Chile and Brunei, despite the significant enhancement of trade and diplomatic ties with Vietnam.

Vietnam signed a “comprehensive strategic partnership” with the US during a visit by the latter’s president, Joe Biden, on September 10th. This followed a strong push from the US administration through a series of visits in 2023 by high-level figures, including the secretary of state and the vice-president.

Upgrade will be a thorn in the side of Vietnam-China relations

The new comprehensive strategic partnership will elevate the US to a status that has been previously reserved only for China, Russia, India and South Korea. This marks a significant breakthrough in bilateral ties after years of hesitancy from Vietnam, and is indicative of the shared strategic interests of the two nations. US assistance has helped in enhancing Vietnam’s maritime security capacity, as the latter seeks to manage risks linked to its territorial dispute with China in the South China Sea. Vietnam will also consider the possibility of further deterioration in US-China relations in the coming years as a reason to upgrade diplomatic ties with the US sooner rather than later, before the matter becomes too sensitive. 

Vietnam will stand to benefit from improved foreign investor confidence, investment inflows and maritime domain awareness as a result of the upgrade. The country’s economic growth slowed sharply to 3.7% year-on-year in the first half of 2023, compared to the 8% growth recorded in 2022, and an upgrade of ties with the US will support its attempts to overcome ongoing economic challenges.

Growth in foreign investment has been subdued this year, and the US, while being the second-largest trading partner for Vietnam, was only the eighth-biggest source of foreign investment over the first half of 2023, indicating substantial room for improvement in investment inflows. We expect that the upgrade will help US firms to boost their investment plans in sectors such as semiconductor manufacturing, offshore wind and liquefied natural gas (LNG). 

The upgrade could also help Vietnam to guard against risks to its economic ties with the US. Closer geopolitical relations will help to reduce the risk of punitive trade action amid US scrutiny regarding the incidence of transshipment fraud, with a trend of Chinese goods often being re-exported as Vietnamese exports. The upgrade will also help to lower the risk of Vietnam being labelled a currency manipulator by the US during our forecast period (2023-27); Vietnam has previously faced allegations that is suppressed currency appreciation in order to increase its trade competitiveness. 

We believe that China is unlikely to impose penalties following Vietnam’s diplomatic upgrade with the US. Although the upgrade is bound to frustrate Chinese authorities, Vietnam will convey that a strategic partnership with the US is more of a political declaration than a sign of deep security co‑operation. A cordial meeting on September 5th between the Chinese Communist Party’s international department head, Liu Jianchao, and the general secretary of the Communist Party of Vietnam, Nguyen Phu Trong, at which both sides agreed to work towards enhancing political trust, supports our view. We expect that Vietnam will continue to hold high-level diplomatic engagement with China in the weeks ahead, possibly including a state visit by China’s president, Xi Jinping, although no formal announcements have yet been made. 

Vietnam’s foreign policy will remain omnidirectional 

The upgrade in relations with the US does not indicate a strategic shift against China, but rather Vietnam’s intention to maintain independence with regard to its foreign policy decisions. There remain points of concern over deeper relations with the US, and an explicit US-leaning foreign policy is unlikely to emerge in Vietnam. The country’s one-party political system often persecutes those identified as leaders of civil and labour rights movements, which will also go against the values-based foreign policy of the US administration. Amicable relations with China will remain among the Vietnamese administration’s priorities, given substantial economic links, and strained bilateral ties are unlikely to result in outright military conflict or economic sanctions on Vietnam, even amid increasing confrontation over territorial disputes.

Vietnam will formally upgrade relations with more diplomatic partners, including Australia and Singapore, by 2024 as it continues to strengthen its broader geopolitical standing. An upgrade in relations with Singapore, the leading source of foreign investment in 2023, will further boost investment inflows into manufacturing industrial parks, clean energy and the digital economy. Vietnam will also aim to enhance its economic and security ties with other regional powers that have their own territorial disputes with China, such as India and Japan. We believe that prospective upgrades to diplomatic ties will also be driven by Vietnam’s ambition to reduce its dependence on Russia for arms imports and to diversify procurement to other countries, such as Israel and the US. 

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.