Beyond Exports: Vietnam’s Shift Toward Higher Domestic Value in Global Trade

As global trade tensions between the United States and China reshaped supply chains, Vietnam quickly rose as a major export winner. Factories expanded, shipments surged, and the country's share in global trade grew. But a new World Bank study reveals that the real story goes beyond rising export numbers. The key question is not just how much Vietnam exports, but how much of that value is actually created within the country.

Researchers from the World Bank, working with academic partners from the University of Virginia and ESG UQAM, set out to answer this. Their findings show a significant shift: Vietnam is not only exporting more, but also producing more of that value domestically.

From Assembly Hub to Value Creator

For many years, Vietnam followed a familiar pattern seen across developing economies. Firms relied heavily on imported components, assembled products locally, and exported them abroad. This meant that even when exports grew, much of the economic value stayed outside the country.

This trend began to change around 2018. As the US–China trade war disrupted global supply chains, Vietnam's domestic value added in exports started to rise after years of decline. This suggests that firms were no longer just assembling imported parts, but increasingly using local inputs and creating more value at home.

This shift matters because higher domestic value means stronger benefits for the local economy, including better income generation and deeper industrial development.

How Trade Tensions Changed Firm Behavior

The turning point came when US tariffs on Chinese goods created sudden changes in demand across different products. Vietnamese firms that were already producing goods now in higher demand in the US found themselves with new export opportunities.

Because firms cannot easily switch what they produce, this created a natural test. Some firms gained more from the shift than others, not because they were better, but because they happened to be in the right product categories.

The study finds that firms benefiting from stronger US demand did not just export more. They also increased the share of domestic value in their exports. Instead of importing more materials to meet demand, they relied more on domestic suppliers. As a result, local industries became more integrated into export production.

Growth Without More Jobs

The export boom also changed how firms operated. Companies expanded output and became more productive, producing more with the same resources. However, this growth did not lead to a significant increase in jobs within existing firms.

This suggests that firms improved efficiency rather than simply hiring more workers. At the same time, exports did not just shift toward the US. Firms increased sales to other countries as well, showing that the shock led to overall expansion rather than just trade diversion.

Still, not all firms benefited equally. Larger and more productive firms were better able to adapt and shift toward domestic sourcing. Smaller firms struggled to make similar changes, likely due to limited resources and weaker supplier networks.

A Divide Between Firms

One of the most striking findings is the difference between types of firms. Domestic firms and many foreign-owned firms increased their use of local inputs and improved domestic value creation. But Chinese-owned firms followed a different path.

These firms increased exports to the US, but also raised their imports from China. As a result, they did not increase the domestic value in their exports. This suggests that some firms may have used Vietnam mainly as a processing or transit hub rather than building deeper local supply chains.

New firms entering after 2018 also showed a different pattern. While they created most of the new jobs and contributed to export growth, they tended to rely more on imported inputs and had lower domestic value added.

What It Means for Vietnam

The study highlights two key reasons behind the shift toward domestic value. First, stricter scrutiny by US authorities pushed firms to increase local content to avoid tariffs or penalties. Second, a surge in foreign investment helped build domestic industries, making it easier for firms to source inputs locally.

Overall, Vietnam's experience shows that global trade shocks can do more than shift where goods are produced. They can change how goods are produced. The country is moving beyond being just an assembly hub toward becoming a stronger value creator.

But the gains are uneven. While some firms are upgrading and integrating more deeply into the local economy, others remain tied to global supply chains with limited domestic impact. The challenge ahead will be to ensure that more firms can make the transition, so that export growth translates into broader economic benefits.