by Bich T. Tran, ISEAS

EXECUTIVE SUMMARY

• Vietnam’s trade deficit with China has grown rapidly since 2001. Its heavy dependence on Chinese intermediate and capital goods creates vulnerabilities in its entire production chain.
• China has a history of using trade as a weapon to punish countries with which it has disputes. Escalating tensions in the South China Sea have served as a wake-up call for Hanoi to reduce its trade dependence on Beijing.
• Towards this end, Vietnam, has over the past few years, signed a number of new-generation free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which excludes China, and the European Union-Vietnam Free Trade Agreement (EVFTA).
• However, Vietnam’s efforts to reduce its trade dependence on China through these FTAs have not produced desired outcomes. Both the CPTPP and the EVFTA have come into force in Vietnam for a short while, and it may take more time for Vietnam to fully benefit from them.
• In the meantime, Vietnam will need to take proactive measures to increase the utilization rate of these agreements and push forward economic and institutional reforms to strengthen its overall economic resilience. If Vietnam is successful in these efforts, its trade reliance on China, which is likely to persist in the short to medium term, will be less of a concern.

* Bich T. Tran is a Ph.D. Candidate at the University of Antwerp, a Fellow at Verve Research, and an Adjunct Fellow at the Center for Strategic & International Studies (CSIS). Her research interests include Vietnam’s grand strategy, Southeast Asian states’ relations with major powers, and political leadership.