How to make Vietnam a powerful ally for US

Kamala Harris’ historic visit to Vietnam — the first time a US vice president has visited the country since the end of the war — has got me thinking about the relationship between the two countries. Both nations’ interests would be served by a closer economic partnership. But making such a partnership work will require far-sighted policy changes on the part of both governments. The US must open itself to trade with Vietnam, while Vietnam must rebalance and strengthen its economic development model.
The increasing diplomatic warmth between the US and its old wartime foe is not primarily about economics; it’s about China. Vietnam feels menaced by its huge northern neighbour, with whom it has ongoing territorial disputes and a long history of warfare. Though an outright alliance with the US is highly unlikely, Vietnam is understandably seeking a strategic partnership to help maintain the balance of power.
The success of such a partnership will depend crucially on economic factors. Vietnam has made great strides recently in terms of boosting its people’s standard of living, but it’s still a poor country, with a level of technology that makes it a poor match for an increasingly cutting-edge China. The US needs to structure its economic relationship with Vietnam around helping that country to grow, not just for the sake of Vietnamese people’s living standards, but so that the country will make a more powerful ally.
In many ways, Vietnam is following the well-trodden East Asian development model. A series of liberalizing reforms in the 1980s led to a hybrid of communist authoritarianism combined with capitalist enterprise. It joined the World Trade Organizatoin, signed a trade agreement with the US, and became an export powerhouse of labor-intensive manufactured products like clothing and electronics. And it held down the value of its currency in order to make its products more competitive overseas.
This standard model has allowed Vietnam to quadruple its living standards, and to benefit from the US-China trade war.
So far, so good. But making cheap stuff and selling it overseas will only take a country so far. To catch up with China, Vietnam will have to boost productivity and move up the value chain, shifting to higher-value technologically advanced products. As evidenced by the fact that Vietnam’s productivity growth has been slowing down, making the leap to the next level of development will require a number of changes.
First, Vietnam has to get better at doing the things that governments typically do to aid growth — education and infrastructure. The country has great primary and secondary education but falters when it comes to higher ed, so colleges need to be beefed up.
The country’s road system is relatively poor, and its ports are frequently strained to capacity. Next, Vietnam needs to develop world-class companies. Currently, the country’s leading corporations are in traditional upstream sectors like oil and electricity, or in primary industries like food and paper; much of the actual manufacturing is done by foreign firms.

—Bloomberg