The Future of Taiwan-Vietnam Economic Relations

The Future of Taiwan-Vietnam Economic Relations

TW Vietnam Semiconductors Masthead
The Future of Taiwan-Vietnam Economic Relations

Following the election of Lai Ching-te (賴清德), there has been considerable speculation as to how Taiwan’s economic relations with Vietnam will evolve. The relationship is likely to be influenced by a variety of factors: including the policies of the new leadership, existing trade agreements, and geopolitical considerations. Under President Tsai Ing-wen (蔡英文), Taiwan prioritized Vietnam in its foreign policy, particularly through the 2016 New Southbound Policy (NSP, 新南向政策). This policy aimed to strengthen ties with ASEAN nations, South Asia, New Zealand, and Australia, resulting in significant achievements for both Taiwan and Vietnam over the past seven years. As of 2023, Vietnam is Taiwan’s 11th-largest trading partner globally and third within ASEAN, with Taiwan ranking as the fifth-largest foreign investor in Vietnam. According to Taiwan’s International Trade Administration (ITA, 經濟部國際貿易署), bilateral trade between Taiwan and Vietnam reached an all-time high in 2022, with total export turnover reaching almost USD $28 billion, while the trade surplus increased to USD $17.6 billion.

Taiwan Turns to Vietnam

US-China trade tensions have prompted many large Taiwanese technology firms to diversify their global presences, with many relocating to Vietnam. These companies have sought to capitalize on Vietnam’s young and cheap workforce, politically stable environment, and advantageous open policy for Taiwanese firms. This has positioned Vietnam as an attractive destination for Taiwanese investment. Additionally, Vietnam is seen as one of the fastest-growing economies in ASEAN, making it a suitable choice for the transfer of manufacturing capacity from China, particularly in the electronics sector. Major consumer electronics contract manufacturers such as Foxconn (鴻海精密工業股份有限公司), Compal (仁寶電腦工業股份有限公司), Pegatron (和碩聯合科技股份有限公司), Wistron (緯創資通股份有限公司), and Qisda (佳世達科技股份有限公司) have all come to Vietnam to establish factories or expand their manufacturing capacities. Approximately 40 percent of new investments from Taiwan are directed toward Southeast Asia, with Vietnam becoming the second-largest destination for Taiwanese overseas investment, according to Taiwan Economic and Cultural Office (TECO) in Vietnam.

Moreover, the substantial presence of Taiwanese nationals in Vietnam and vice versa, including students, workers, and spouses, underscores the importance of people-to-people ties in Taiwan-Vietnam relations. For example, there are about 90,000 Taiwanese citizens in Vietnam and over 270,000 Vietnamese citizens in Taiwan, with many serving as students, domestic workers, and factory workers. Moreover, there are roughly 110,000 Vietnamese spouses of Taiwanese natives, making people-to-people ties a significant aspect of Taiwan-Vietnam relations. Notably, in 2023, Taiwan also emerged as the largest foreign labor export market for Vietnam, providing employment opportunities for Vietnamese workers and contributing to their country’s development through remittances.

In addition to trade and investment, collaborative initiatives such as the “2023 Wow! Taiwan Project” have further enhanced bilateral ties by encouraging collaboration technology development, medical equipment, and healthcare. This program has attracted more than 60 Vietnamese and Taiwanese enterprises to participate in trade sessions and to sign a memorandum of understanding (MOU) on September 12, 2023. Initiatives such as this seek to build upon decades of trade connections between Vietnam and Taiwan, and are aimed at promoting investment cooperation, online commerce, technology transfer, and medical equipment processing and distribution.

Given these achievements, it is promising that President-elect Lai of the Democratic Progressive Party (DPP, 民進黨) seems likely to continue to foster economic relations with Vietnam. During his campaign for the presidency, he promised that he would move more businesses from China and foster relations with ASEAN countries. Given the significant strides made under President Tsai, Vietnam is poised to remain a key partner for Taiwan in its evolving economic strategy.

Technological Collaboration

Taiwan has long recognized the pivotal role of the semiconductor industry in its economy, being the largest global producer of advanced chips in this sector. As it seeks to forge partnerships with other nations, maintaining its leadership position in semiconductor manufacturing will be paramount. However, Taiwan faces challenges related to insufficient electricity and water supply, critical for chip production. Partnering with countries that can address these shortages would greatly benefit Taiwan. Vietnam, with its strategic geographical advantage and burgeoning maritime economy, presents significant potential for development, particularly as a provider of renewable energy sources such as wind, solar, and hydroelectric power. Forecasts by Wood Mackenzie indicate Vietnam’s ascent as a major player in the global wind power market, with substantial new capacity expected by 2030. Tech Wire Asia, a technology news platform, similarly predicted that Vietnam will become a “Green Energy Powerhouse” in Asia.

Taiwan’s own green industry has experienced notable growth, with its exports contributing significantly to the global market. Leveraging its expertise, Taiwan can assist Vietnam in developing its green industry sector. Moreover, Taiwanese companies established in Vietnam stand to gain from this collaboration, addressing Taiwan’s challenges of electricity and water shortages while benefiting from Vietnam’s lower labor costs. This synergy offers the potential for increased profitability compared to domestic manufacturing. By partnering with Vietnam in the realm of renewable energy and green industry development, Taiwan can address its domestic semiconductor production challenges while fostering mutually beneficial economic growth and cooperation.

In the realm of chip production, the government has placed significant emphasis on domestic considerations when engaging in partnerships. However, this has not impeded Taiwan’s collaboration with other nations, provided that it continues to prioritize the advancement of research and technology within its borders. In fact, Taiwanese companies have already established numerous chip manufacturing facilities overseas, including a 5-nanometer plant in the United States and a 12-nanometer facility in Japan.

Vietnam faces similar issues, but lacks an advanced semiconductor industry or the skilled workforce necessary to sustain one. To assist Vietnam in building its semiconductor industry, Taiwan has initiated programs leveraging its expertise. For instance, the Ministry of Education (MOE, 教育部) launched the International Industrial Talents Education Special Program (INTENSE Program) to attract talent from countries like Vietnam. This program aims to integrate resources from government, industry, and universities to recruit international students. Initially targeting students from Vietnam, Indonesia, and the Philippines, this program provides opportunities for employment in Taiwan, as well as training for participants returning to their home countries. Students opting to stay in Taiwan may work for Taiwanese companies, some of which have operations in Vietnam. Alternatively, they may contribute to Vietnam’s development by working in their homeland. This collaborative approach not only addresses Taiwan’s skilled labor shortage, but also supports Vietnam’s semiconductor industry aspirations and fosters bilateral ties.

Geopolitical Considerations

In terms of geopolitics, Taiwan’s strategy of diversifying its manufacturing is intended to serve as a crucial safeguard to ensure the stability of the supply chain, especially in the event of a potential Chinese attack on Taiwan. This diversification has been exemplified by Taiwan’s establishment of chip manufacturing facilities in various countries, which reduces reliance on a single geographic location. The Russia-Ukraine war has highlighted the economic repercussions of imposing sanctions on a major player like Russia. Even the United States and Japan have faced domestic economic impacts as a result of sanctions on Russia. If a similar scenario were to occur with China, the United States and Japan would likely endure substantial losses due to their dependency on Taiwan’s chip supply and strong economic ties with China. Therefore, it is likely that these nations would prioritize resolving their own economic issues before extending assistance to Taiwan.

The Russia-Ukraine conflict has underscored the importance of maintaining economic security through cooperation and mutual dependence to mitigate the high costs associated with conflict. Taiwan’s diversification strategy aligns with its interests and contributes to stabilizing the supply chain for its strategic partners, such as the United States and Japan. Additionally, this approach could potentially garner support from Taiwan’s partners in the event of a conflict in the Taiwan Strait. These partnerships may result in joint appeals for peaceful conflict resolution, signaling to China the significance of diplomatic avenues. This strategy could help reduce tensions and bolster stability in the area by highlighting the shared goal of preventing conflict and preserving peace.

Despite the significant economic cooperation between Taiwan and Vietnam, China’s influence remains a major factor in their relationship. Vietnam adheres to its own “One-China Policy” and maintains only unofficial diplomatic ties with Taiwan. While both Taiwan and China are involved in the South China Sea dispute with Vietnam, Hanoi has increasingly viewed China as the more significant concern. Vietnam continues to value its relationship with Taiwan, particularly given Taiwan’s increasing role as a destination for Vietnamese immigrants and its impact on regional security dynamics. Furthermore, Vietnam is working to reduce its economic reliance on China, making diversification with other economic partners crucial for its stability and growth.

Following the election, attention has understandably turned to President-elect Lai who has voiced support for strengthening ties with other nations, including Vietnam, in order to decrease reliance on China. The statistics from 2022 illustrate significant growth in Taiwan’s exports to ASEAN countries. Total exports reached USD $96.9 billion, marking a notable increase of 17.3 percent compared to 2021. Furthermore, the share of Taiwanese exports flowing to ASEAN countries rose from 17.7 percent in 2020 to 20.2 percent in 2022. In contrast, Taiwan’s export share to China declined from 43.9 percent in 2020 to 38.8 percent in 2022. This shift, with Taiwan increasingly focusing on ASEAN countries while reducing its reliance on exports to China, could indeed provoke concerns for China, especially with the DPP retaining power in Taiwan. China may interpret this development as a challenge to its regional influence. Consequently, China might escalate efforts to maintain its economic leverage over Taiwan and discourage other nations from enhancing economic relations with Taiwan.

It is plausible that China may also increase its pressure on ASEAN to prevent its member states from expanding their economic cooperation with Taiwan, especially considering recent events. For instance, China warned the Philippines to “not play with fire” over Taiwan after President Ferdinand Marcos, Jr., congratulated Lai on his electoral victory. Additionally, during President Tsai’s tenure, China successfully reduced the number of countries recognizing Taiwan as an independent nation from 22 to 13. These actions suggest that China is vigilant about preventing Taiwan from gaining international recognition and support. As a result, China may intensify efforts to dissuade ASEAN countries from engaging in economic cooperation with Taiwan, potentially through diplomatic pressure or economic incentives. Indeed, ASEAN, including Vietnam, is committed to maintaining its independent and autonomous stance while adhering to its “One-China Policy.” Nevertheless, ASEAN nations recognize the economic opportunities presented by cooperation with Taiwan and will likely continue to engage with Taiwan across various sectors such as trade, culture, education, and healthcare. However, ASEAN countries will proceed cautiously to avoid provoking China. They will aim to maximize economic ties with both China and Taiwan while navigating diplomatic sensitivities. This balanced approach allows ASEAN to pursue economic development.

The main point: Amid Taiwan’s efforts to diversify its trade partners, Vietnam has emerged as a leading target for collaboration. Despite Chinese pressure, Taiwan and Vietnam have built a strong, increasingly dynamic economic partnership, which is likely to continue to grow in the coming years.