China Plus One: Why US Manufacturers Are Shifting their Production to Vietnam

As the U.S.-Sino trade war continues, U.S. manufacturers are looking at alternative locations. Southeast Asia has become one of the top spots. More and more U.S. businesses are shifting production from China to the neighboring countries in the south.

In Q1 2019, Vietnam’s exports to the U.S. rose by nearly 29 per cent year-on-year, making the U.S. the largest importer of goods produced in Vietnam. One major reason was the increased activity of U.S. manufacturers in the country.

Low labor cost and young population

It’s not all about the trade war. The trend of foreign manufacturing businesses moving from China to Vietnam has been ongoing for a longer time; the trade war has only accelerated it.

As production costs in China have gone up, the country has become unattractive for low-cost manufacturers. Minimum wages in China vary from US$ 143 to US$ 348, depending on the province. In comparison, minimum wages in Vietnam are about half, ranging from US$ 125 to US$ 180.

Additionally, China’s ageing population has resulted in a shortage of manufacturing workers, whereas Vietnam has one of the youngest populations on the planet.

Trade agreements and proximity to China

Whereas China and the U.S. are flexing their muscles in the struggle for power, Vietnam is undertaking significant efforts to appeal to multinational companies. The country has signed several bilateral trade agreements and has joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Moreover, Vietnam is close to the traditional manufacturing hubs in China and has approximately 3,200 km long coastline with 114 seaports. The port of Hai Phong, a major trading hub in Vietnam, is just 865 km away from China’s manufacturing base of Shenzhen. Due to this proximity, manufacturers often view Vietnam as a China-Plus-One destination, which can easily enhance their already existing capabilities.

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