Australian PM in Hanoi to Talk Trade, Green Energy Transition

Vietnam-Australia trade has experienced huge growth in recent years. With the Australian Prime Minister in Hanoi to talk trade over the weekend, we thought we’d take a quick look at how trade between these two countries is developing.

Australian Prime Minister Anthony Albanese was in Hanoi over the weekend to talk trade with Vietnamese Prime Minister Pham Minh Chinh. The two countries have had a long and prosperous relationship for almost 50 years as a result of complementary competitive advantages: Australia’s natural resources and Vietnam’s low-cost labor.

But the relationship between these two countries goes well beyond trade. There is a huge Vietnamese diaspora in Australia, which has had a potent influence on Australia’s development as a nation.

Furthermore, contributing to the development of Vietnam has been a priority of successive Australian governments. During his recent visit, the Australian prime minister pledged AU$105 million (US$69 million) to Vietnam’s clean energy transition. This was well received, with Australian coal a major contributor to Vietnam’s greenhouse gas emissions – 17 million tons of coal imported into Vietnam in 2022 came from Australia.

This cooperation has been made possible by the outward-looking approach that both nations have toward international trade, exemplified by their commitment to a range of free trade agreements (FTAs).

Vietnam-Australia trade relations

Trade between Australia and Vietnam is governed by three key FTAs:

• The Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP)
• ASEAN – Australia – New Zealand (AANZFTA)
• Regional Comprehensive Economic Partnership (RCEP)

Furthermore, Vietnam and Australia have both signed up to the Indo-Pacific Economic Framework (IPEF). Details of where this agreement may lead are still unclear but generally, it shows a like-minded approach to international trade.

See also: Vietnam’s Free Trade Agreements – Opportunities for Your Business

Australian FDI in Vietnam

So far this year, Australian firms had started 12 new projects in Vietnam and contributed US$19 million to Vietnam’s FDI inflows. This brings the all-time total Australian FDI in Vietnam to US$2 billion across 596 projects. These investments have been in fields from banking to education to manufacturing.

Australia’s exports to Vietnam

At the beginning of the COVID-19 pandemic, the then Australian Prime Minister, Scott Morrison, publicly called for a full investigation into the origins of the virus. This was not well received in China, which responded by applying trade restrictions on a number of Australian imports. As a result, Australian producers had to search out other markets and subsequently found a willing market for a broad range of Australian goods in Vietnam.

Australia’s main exports to Vietnam

Source: Vietnam General Department of Customs

Coal

Australia is one of the biggest coal mining countries in the world. It is estimated to have the world’s third-biggest supply of coal, accounting for 14 percent of the global supply. Vietnam, by comparison, has a relatively small coal reserve but a number of thermal power plants that need coal to run. It, therefore, makes sense that Australia’s biggest export to Vietnam is coal.

Cotton

A relatively new development, the growth of Australia’s cotton exports to Vietnam has been phenomenal. Vietnam manufactures clothing and apparel for several big brands, including the likes of Nike, Adidas, and Puma. Demand in the Southeast Asian nation for raw cotton, as a result, is huge. Vietnam has now surpassed China as the biggest buyer of Australian cotton.

Read more: How Vietnam Became the Biggest Importer of Australian Cotton

Ores and other mineral products

A major mining nation, Australia has copious amounts of natural resources. It does, however, have a relatively small population and low domestic demand for resources like iron ore relative to the size of its reserves. At the same time, Vietnam’s 100 million-strong population needs housing and office space, and factories that all need an abundance of steel in order to stay standing.

Vietnam’s exports to Australia

As a manufacturing powerhouse, Vietnam exports a broad range of finished goods to Australia. The relatively low wages in Vietnam compared to Australia make Vietnam’s manufactured goods much better value for Australian consumers – compared to products made Down Under.

Vietnam’s exports to Australia

Source: Vietnam General Department of Customs

Electronics

Vietnam’s low cost of production has made it an attractive destination for electronic device manufacturing. This is particularly important in the mobile phone industry where operating margins and keeping prices competitive are crucial.

With big companies like Samsung and Apple now manufacturing in Vietnam, the volume of electronics exported to countries like Australia, has grown exponentially.

Machine, equipment, tools, and instruments

Vietnam is also an attractive location for manufacturing industrial machines and tools. These products can be produced at a lower cost than in rival manufacturing countries but also to international standards.

Textiles and garments

Vietnam has made significant improvements in the quality of its textiles and garments over the years. Many Vietnamese manufacturers have invested in modern equipment and technology to produce high-quality products. These goods are popular among developed nations, including Australia, where disposable incomes are high and fashion is popular.

The future of trade between Vietnam and Australia

Moving forward, the long and fruitful relationship between Australia and Vietnam should provide a stable foundation for greater cross-border trade and investment.

Furthermore, the CPTPP and RCEP will continue to remove trade barriers, which should see even more benefits realized for both parties.

Moreover, the unpredictable nature of China’s trade policy toward Australia will likely see Australian exporters continue to strengthen their bonds with other regional markets like Vietnam. With this in mind, bilateral trade between Australia and Vietnam is expected to continue growing well into the long term.

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