The real winner of the China+1 strategy? Vietnam | Number Theory

What does Vietnam’s export success tell us? Are there any particularly important lessons for India?

Vietnam became the largest exporter to the US in the first half of 2026. It is also a country that has made large gains in exports to the US after 2016, when Donald Trump won his first presidential election and began the US’s pivot towards protectionism, first against China and, in his second term, against most US trading partners. What does Vietnam’s export success tell us? Are there any particularly important lessons for India?

(Pexel/Repersentative image) (Pexel)

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  US’s overall trade deficit hasn’t fallen, but its Chinese trade deficit has

  The US trade deficit with China has fallen sharply from $418 billion in 2018 to $203 billion in 2025. Its overall goods deficit, however, moved in the opposite direction, rising from $870 billion to a record $1.23 trillion over the same period. As expected, the US imported more from other countries. By the first half of 2026, America’s deficits with Vietnam and Taiwan were already larger than its deficit with China. A 2019 IMF research note had seen this coming. “A tariff-induced change in a specific trade balance between two countries tends to be offset by changes in bilateral balances with other partners through trade diversion, with little or no impact on the aggregate trade balance”, it had said. Vietnam’s big success in US export market has generated huge tailwinds for its overall export earnings. Its exports in 2025 were higher than India’s, even though India’s GDP is 7.7 times the size of Vietnam’s.
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  Vietnam has gained across sectors from US’s trade diversion away from China

  To understand this, HT looked at two-digit HS trade product groups with at least $20 billion of US imports in 2025, where China supplied at least 20% of the market in 2017 and then lost at least five percentage points of share. The filters are meant to focus on large, economically meaningful markets where China was once an important supplier and then clearly lost share, rather than on small product categories where a sharp percentage-point fall may not amount to much in dollar terms. Nine categories qualified this filtering process. Vietnam emerges as the most consistent beneficiary across labour-intensive goods. Its share rose by nearly 18 percentage points in toys, about 15 points in furniture and footwear, and six to eight points in apparel. Taiwan’s gains were more concentrated in machinery, where its share jumped almost 19 points. India’s footprint was smaller overall, but electrical machinery stands out, rising by 5.6 points—second only to Vietnam among the countries analysed—while it also made smaller gains in apparel and iron and steel articles. The reshuffling of US sourcing has therefore produced a clear hierarchy of winners. Vietnam has captured the broadest set of gains, Taiwan and Mexico have dominated particular manufacturing segments, while India’s success has so far been narrower and more sector-specific.
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  Vietnam’s trade engagement with China has increased consistently

  Vietnam’s rise in the US market also came with deeper trade ties to China. Between 2017 and 2024, US imports from Vietnam nearly tripled, while China’s exports to Vietnam more than doubled. More importantly, Chinese exports of intermediate goods to Vietnam rose by about 86%. This suggests that although some production may have shifted out of China, China remains an important supplier further up the value chain.
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  Lessons for India: Chinese engagement matters, but so does the domestic economy

  Export success stories are often read mechanically. Sometimes they are seen as driven by cheap labour, sometimes by FDI or economic linkage with one particular country. Vietnam’s recent success story shows why the reality is more nuanced than such simplistic claims. China does have a large share in Vietnam’s intermediate imports, but it is not the only country with a large Chinese share in intermediate imports. Not all of them have been able to increase exports to the US in the post-Trump era. And some, such as chip-exporting Taiwan, have increased exports to the US without raising Chinese imports. This is where playing by a country’s comparative advantage becomes important.