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What’s at Stake in the US Decision to Grant Vietnam ‘Market Economy’ Status?

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Trans-Pacific View | Economy | Southeast Asia

What’s at Stake in the US Decision to Grant Vietnam ‘Market Economy’ Status?

Trust – and the lack of it – has been a key factor in Vietnam-U.S. relations over the past half-century.

What’s at Stake in the US Decision to Grant Vietnam ‘Market Economy’ Status?

An aerial view of the Tau Hu Canal in Ho Chi Minh City, Vietnam.

Credit: Photo 73574814 © Yen Mai Kim |

The most anticipated event in Vietnam-U.S. relations this year is the possible U.S. granting of market economy status to Vietnam. On July 26, the U.S. Department of Commerce (DOC) will decide whether Vietnam meets the criteria for the change. This came after the two nations upgraded their relationship from a comprehensive partnership to a comprehensive strategic partnership (CSP) during President Joe Biden’s visit to Hanoi in September of last year.

This dramatic development in relations between the two former adversaries has prompted curious observers to ask what underpins the rapid growth of Vietnam-U.S. relations in recent years. Almost everyone understands that the answer is trust. Now that the two countries have established a CSP, the question concerns what the foundation for Vietnam-U.S. relations will be going forward – and the answer is the same: trust.

Indeed, trust – and the lack of it – has always been a key factor in Vietnam-U.S. relations. It has served alternately as a driving force of relations and a bottleneck. This stems from the two nations’ history, the differences in their political systems, and the differing understandings of the purposes and national interests that both countries pursue in their bilateral relationship. Trust is made all the more important given the asymmetrical relationship between the two countries, where Vietnam is a smaller, less developed country and a former victim of war. However, how can that trust, an intangible variable, be measured in the relationship between the two countries?

The Joint Statement issued by the two countries in September affirms the U.S. commitment “for a broad, strengthened, supportive, and constructive engagement with Vietnam in its transition to a market economy, and subsequently to market economy country status, under U.S. law.” Just before Biden arrived in Hanoi, Vietnam also officially requested that the U.S. review its market economy status.

The Joint Statement also states that the U.S. “will review Vietnam’s request as expeditiously as possible, in accordance with U.S. law.”

It appears that the Biden administration has fulfilled this commitment. One month after the CSP upgrade, the U.S. initiated the process of reviewing Vietnam’s market economy status. On May 8, the DOC held a hearing on whether to upgrade Vietnam, a move that was welcomed by Hanoi. The Vietnamese side has also been actively advocating for this. In recent months, high-ranking Vietnamese officials, including the president, the prime minister and the foreign minister, have taken advantage of meetings and contacts with U.S. politicians and officials to call for early recognition of Vietnam as a market economy. During a meeting with Prime Minister Pham Minh Chinh last September, U.S. National Security Advisor Jake Sullivan stated that he would push for the U.S. to grant the status to Vietnam soon.

Notably, during a reception for a business delegation from the U.S.-ASEAN Business Council in March, the then chairman of the National Assembly of Vietnam, Vuong Dinh Hue, directly stated that the U.S. early recognition of market economy status for Vietnam would be seen as evidence of growing trust between the two countries.

The change in Vietnam’s high-level leadership in the first few months of this year, as a direct result of the Communist Party of Vietnam’s anti-corruption campaign, as well as Hanoi’s red carpet welcome for Russian President Vladimir Putin on June 19-20, seems to have caused some concerns among foreign investors and governments. However, speaking to the press in Hanoi during a brief two-day visit on June 21-22, immediately after Putin’s visit, U.S. Assistant Secretary of State for East Asia and Pacific Affairs Daniel Kritenbrink, a former U.S. Ambassador to Vietnam, said that the trust between the two countries had never been greater.

This is largely true: bilateral dialogues are more open, frank, and substantive; contacts and delegation exchanges are more frequent; and Vietnam is also an increasingly attractive and reliable destination for U.S. corporations and investors. In the past two years, many high-level corporate delegations have come to Vietnam to seek investment cooperation opportunities. Last year, for example, a delegation of nearly 60 major U.S. businesses visited Vietnam.

During his time in Hanoi, Biden and Chinh attended the Vietnam-U.S. High-Level Conference on Investment and Innovation. Many leaders of major U.S. technology corporations, such as Jensen Huang, the chairman and CEO of Nvidia, which has already invested $250 million and intends to establish a chip production center in Vietnam, and Tim Cook, the CEO of Apple, which has invested $16 billion in Vietnam to date, have visited the nation over the past year.

On the opposite side, many Vietnamese companies have and are planning to invest in the U.S. Last month, more than 70 Vietnamese enterprises attended the SelectUSA Investment Summit in Maryland to explore investment in the U.S. in various fields including software, information technology, and logistics.

To be sure, there are a number of concerns from the U.S. side regarding Vietnam’s economic status. However, Vietnamese economic experts and officials will find it difficult to understand if the U.S. does not recognize Vietnam as a market economy this year, given their belief that Vietnam is already a market economy. Vietnam has made policy adjustments to meet the DOC’s statutory criteria since the previous review in 2002. To date, more than 70 countries, including U.S. allies such as Canada, Japan, the United Kingdom, and Australia, have granted market economy status to Vietnam. Given the strategic relationship between the two countries and the actual operation of Vietnam’s economy, some influential voices have suggested that it’s time for the United States to “graduate Vietnam from its non-market economy status.”

There will inevitably remain differences in Vietnam-U.S. relations, including human rights issues. However, the strategic interests of both countries should not be affected by these differences. Vietnam-U.S. relations have come a long way, and it has been very difficult for the two countries to achieve the current prospects for their relationship, built on a foundation of trust established over more than three decades. Moreover, remaining U.S. concerns about a possible upgrade in Vietnam’s economic status should be grounded on the facts rather than on local protectionism. A strong, independent, and self-reliant Vietnam should not lack U.S. support, and this is also in line with U.S. strategic interests in the Indo-Pacific region.

Trust in Vietnam’s relations with major countries, regardless of who they are, remains the foundation and it must be concretized through specific actions and concrete results. Speaking at the Center for Strategic and International Studies, a Washington-based think tank, Vietnamese Ambassador Nguyen Quoc Dzung did not hide his frustration when saying that if the DOC turned down the market economy status for Vietnam, “it would be very, very bad for the two countries.” It is hoped that trust in Vietnam-U.S. relations will only be augmented while the two nations remain in the afterglow of last year’s diplomatic upgrade.