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Hong Kong
CNN
 — 

President Joe Biden is in Vietnam for a visit intended to deepen economic ties between Washington and Hanoi as part of efforts to reduce America’s reliance on China.

The former foes have formally upgraded diplomatic ties to a “comprehensive strategic partnership,” a symbolic yet highly important move that experts say will solidify trust between the nations as America seeks an ally in Asia to counteract political tensions with China and advance its ambitions for key technologies, such as chipmaking.

Companies from Apple (AAPL) to Intel (INTC) have already pushed deeper into the country to diversify their supply chains, maxing out many Vietnamese factories and helping fuel an economic expansion that continues to defy a global slowdown.

On Monday, the White House announced a “landmark deal” between Boeing and Vietnam Airlines worth $7.8 billion, which is expected to support more than 30,000 jobs in the United States. Reuters has reported that the carrier will buy 50 Boeing 737 Max jets.

Biden’s visit, which followed the G20 summit in India, is the first by a US president to Vietnam since Donald Trump’s 2019 trip. He has met with Vietnamese General Secretary Nguyen Phu Trong and other leaders to “promote the growth of a technology-focused” Vietnamese economy, as well as discuss ways to improve stability in the region, according to the White House.

In recent years, their trade has already soared under an existing partnership agreed in 2013, so the elevation in relations is “just catching up with the reality that already exists,” Ted Osius, president of the US-ASEAN Business Council and a former US ambassador to Vietnam, told CNN.

The United States imported nearly $127.5 billion in goods from Vietnam in 2022, compared with $101.9 billion in 2021 and $79.6 billion in 2020, according to US government data.

Last year, Vietnam became America’s eighth largest trading partner, rising from 10th place two years earlier.

The two sides have been moving closer as US officials, particularly Treasury Secretary Janet Yellen, have repeatedly pointed to the importance of “friend-shoring.”

The practice refers to the movement of supply chains toward allies in part to shield businesses from political friction.

“Rather than being highly reliant on countries where we have geopolitical tensions and can’t count on ongoing, reliable supplies, we need to really diversify our group of suppliers,” she said in a speech last year at the Atlantic Council think tank.

Those tensions add to a litany of pressures, including rising labor costs and an uncertain operating environment that have already made corporations think twice about how much business they do in China, which is still considered the factory of the world.

But increasingly, it has competition. During the US-China trade war, which started in 2018, businesses of all sizes began moving manufacturing to emerging markets such as Vietnam and India over tariffs.

After the pandemic broke out, corporations were increasingly forced to consider strategies known as “China plus one,” which meant spreading out production hubs as a way to reduce reliance on a sole manufacturing base.

The latest exodus could cost China dearly: In a 2022 report, Rabobank estimated that as many as 28 million Chinese jobs directly relied on exports to the West and could leave the country as a result of “friend-shoring.”

Some 300,000 of those jobs, focused on low-tech manufacturing, are expected to move to Vietnam from China, analysts wrote.

From an industrial perspective, the country has been booming for years, said Michael Every, a Rabobank global strategist who authored the report. Relatively lower wages and a youthful population have provided Vietnam with a solid workforce and consumer base, bolstering the case to invest in the nation of 97 million people.

But companies hoping to make the switch may already be too late, as some factories are so stretched, customers must wait, he said.

Alicia García-Herrero, chief economist at Natixis, pointed to what she called “overheating,” saying demand for manufacturing in Vietnam has outstripped supply in some cases.

“Too many companies [are] going to Vietnam,” she told CNN.

Vietnam enjoyed an advantage, as it was first in the region to build up supply chain capabilities “for many, many sectors” years ago, she explained.

Shortly after Biden landed in Vietnam on Sunday, the White House announced a new semiconductor partnership.

“The United States recognizes Vietnam’s potential to play a critical role in building resilient semiconductor supply chains, particularly to expand capacity in reliable partners where it cannot be re-shored to the United State,” it said in a statement.

The semiconductor industry has emerged as a key source of tension in US-China relations. Beijing and Washington are both racing to boost their prowess in the sector, and each side has recently enacted export controls aimed at limiting the other’s capacity.

The United States needs a trusted partner for its supply of chips, and Vietnam can do just that, Osius said.

Intel sees it that way. The California-based chipmaker has committed $1.5 billion to a sprawling campus located just outside Ho Chi Minh City, which it says will be its largest single assembly and test facility in the world.

Osius expects more investments in the field to follow as Washington shores up ties with Hanoi.

“The significance of Vietnam in that supply chain will increase,” he predicted. “We’re going to see an acceleration when it comes to collaboration in tech.”

The International Monetary Fund projects Vietnam’s growth will slow to 5.8% from 8% last year as it copes with less overseas demand for its exports.

But that compares favorably with a global growth forecast of 3%, and is noticeably faster many of the world’s major economies, such as the United States, China and the eurozone.

“As the rest of Asia underwhelms, Vietnam will still be one of the fastest growing economies,” Natixis said in a recent research note.

That’s compelling for corporations looking for bright spots in an otherwise gloomy environment.

Such interest was noted in March, when the US-ASEAN Business Council led its biggest-ever business mission to Vietnam. The delegation consisted of 52 American firms, including corporate heavyweights such as Netflix (NFLX) and Boeing (BA).

Of course, companies still have reservations over factors such as Vietnamese tech regulations, which they fear could include limits on the “transfer of data across borders, or too many rules requiring data localization,” according to Osius.

In some cases, businesses are also concerned by how the country’s infrastructure still pales in comparison to a longtime trade powerhouse like China’s.

For example, “there isn’t a sufficient port capacity for some of the goods to be exported as quickly as companies want them to be moved,” Osius said.

Politically, Vietnam shares many similarities to China in that it is an authoritarian one-party state that tolerates little dissent.

But overall, businesses simply want an easy way to hedge their bets.

Vietnam is an obvious choice, because it’s a cheap alternative to manufacturing in China, said García-Herrero.

For various sectors, transitioning isn’t difficult, because many Chinese suppliers also moved there because of US tariffs, she explained. “It’s the most similar because you have the same providers as in China.”

The Biden administration, too, will likely be keen to secure that alternative.

“It’s quite clear that they’re trying to set up a series of foreign policy victories ahead of 2024 [by] signing a strategic comprehensive partnership with Vietnam,” said Every, the Rabobank analyst.

— CNN’s Kyle Feldscher, Jeremy Diamond and Kevin Liptak contributed to this report.