President Biden’s trip to Hanoi on10th September signifies the culmination of a 50-year process of rebuilding bilateral relations after the end of the Vietnam War. Beyond the symbolic significance, the government-to-government agreement forged during this visit has paved the way for transformative collaborations, particularly in Vietnam’s semiconductor industry. In this blog post, we will explore number of outcomes related to semiconductor sector that foreign firms considering relocating to Vietnam should be aware of.
Semiconductor manufacturing and limitations
For a long time simply an assembly point for manufacturing firms, Vietnam sees the global challenge as a domestic opportunity to make its way up the manufacturing value chain and is actively courting chip manufacturers (Samsung for example).
In this context, Biden’s visit was perceived as an opportunity to advocate for increased foreign investment and generate interest in Vietnam’s semiconductor industry. It was clear that this would be a top priority for Vietnam.
However, from the U.S. perspective, supporting semiconductor manufacturing in Vietnam conflicts with its own ‘re-shoring’ policies and interests. More precisely, Biden’s CHIPS Act of 2022 aims to promote semiconductor chip production within the United States. Given this, any agreement related to semiconductor manufacturing will have limitations.
Nevertheless, it’s important to note that there were some positive outcomes from the discussions in Hanoi.
Vietnam’s access to CHIPS Act funding
The CHIPS Act allocates US$280 billion to boost the US semiconductor manufacturing industry. Additionally, it earmarks US$500 million over five years for the International Technology Security and Innovation Fund (ITSI Fund), aiming to enhance the global semiconductor supply chain’s diversity, resilience, and security, as stated on the U.S. State Department website.
Vietnam has managed to tap into this fund with a Memorandum of Cooperation on Semiconductor Supply Chains, Workforce and Ecosystem Development, which will utilize the ITSI Fund “to enhance its semiconductor ecosystem, regulatory framework, and workforce.
Furthermore, the US government allocated an additional US$2 million as seed capital to develop teaching labs and training courses for the assembly, testing, and packaging (ATP) of semiconductors in Vietnam. Notably, these are relatively low-skilled jobs in the semiconductor supply chain.
Regional integration of supply chains
Another component of the U.S.-Vietnam semiconductor chip partnership will be the development of the Developing Electronics & Leading Technology Advancement Partnerships (DELTA) Network. This initiative intends to bring in regional governments and industries to promote talent cultivation, policy coordination, and sector efficiencies, fostering a more integrated electronics supply chain in the region.
Joint research and development
Both countries have also committed to the establishment of the Vietnam-U.S. Science and Technology Agreement for Research (VUSTAR). This body’s mandate is to identify areas of collaboration between the U.S. and Vietnam in artificial intelligence, R&D and governance, health and medical science, climate science, biotechnology, and conservation.
This collaboration aligns with the broader initiatives aimed at strengthening Vietnam’s semiconductor sector and fostering advancements at the intersection of technology and critical scientific domains.
Development of high-skilled workforce
One of the biggest challenges identified in Vietnam has been a lack of high-skilled labor in the manufacturing sector. This is particularly true of the semiconductor industry. According to Reuters, Vietnam currently only has about 5,000 to 6,000 semiconductor engineers but will need up to 20,000 in the next five years and up to 50,000 in the next decade.
In this context, Biden’s visit to Hanoi produced two key initiatives:
- STEM Champions of Vietnam Initiative: This initiative connects U.S. and Vietnamese government educational institutions to strengthen science, technology, engineering, and math education, fostering a skilled workforce.
- The Upskill Vietnam and Foster Digital Growth program: Through USAID, US$12.75 million will be utilized to assist the Ministry of Education and Training (MOET) in modernizing and internationalizing higher education in Vietnam, addressing the need for skilled professionals in the evolving digital landscape.
The upgrade of the relationship between the U.S. and Vietnam to a comprehensive strategic partnership is a coup for both parties. Moving forward, however, there is still room to grow. The current trade agreement between the two nations is now two decades old and in need of an upgrade. Furthermore, as ongoing geopolitical challenges strengthen the U.S.’s resolve to diversify out of China, Vietnam stands to benefit from even greater foreign direct investment from the U.S.
In this light, the economic relationship between these two former foes, at least soon, is likely to become even stronger and more robust.