US, Vietnam upgrade ties as Biden visits in hedge against China

By Nandita Bose, Francesco Guarascio and Trevor Hunnicutt

HANOI/WASHINGTON (Reuters) -U.S. President Joe Biden secured deals with Vietnam on semiconductors and minerals as the strategic Southeast Asian nation elevated Washington to its highest diplomatic status alongside China and Russia.

The U.S. has been pushing for the upgrade for months as it sees the manufacturing dynamo as a key country in its strategy to secure global supply chains from China-related risks.

A half-century after a lengthy and brutal Cold War-era conflict, Biden arrived in Hanoi to a ceremony organised by the ruling Communist Party that included school children waving American flags and honour guards carrying bayoneted rifles.

Biden noted the strides that had been taken toward improved ties.

"We can trace a 50-year arc of progress between our nations, from conflict to normalization, to this new elevated status," he said.

Vietnam is having to navigate frosty relations between Washington and Beijing as it seeks its own foothold in the international economic competition.

Top Chinese officials, possibly including President Xi Jinping, are expected to visit Vietnam in the coming days or weeks, officials and diplomats said, as Hanoi seeks to maintain good relations with all super powers.

It also comes as Vietnam's longstanding relationship with Russia faces tests over the war in Ukraine, including talks with Russia over a new arms supply deal that could trigger U.S. sanctions.

Reuters has seen documents describing talks for a credit facility that Russia would extend to Vietnam to buy heavy weaponry, including anti-ship missiles, antisubmarine aircraft and helicopters, antiaircraft missile systems and fighter jets.

One of them, a letter sent in May by Vietnam's Prime Minister Pham Minh Chinh to the Russian government, showed interest in the possible new deal.

A Vietnamese military officer confirmed the authenticity of the letter and the talks for a new $8 billion credit facility to buy heavy weaponry.

A spokesperson for Vietnam's foreign ministry did not respond to multiple requests for comment on the documents, which show Moscow pushing for months for a loan deal that would bypass Western sanctions on Moscow.

Hanoi is in similar talks with multiple arms suppliers including the United States. In recent weeks, Vietnam has engaged in several high-level defence meetings with top Russian officials.

The upgrade will include a security dimension, Jon Finer, the U.S. principal deputy national security adviser, told reporters on Sunday, while on the plane with Biden to Vietnam from a Group of 20 summit in India.

He said he had no arms deals to announce at this stage but stressed that the U.S. and its partners could offer Vietnam help to diversify away from Russian military supplies, an offer which he said Vietnam was receptive to.

That would help Vietnam reduce military reliance on Moscow, "a relationship we think they are increasingly uncomfortable with," Finer said.

CHIPS, RARE EARTHS

Biden's visit comes as bilateral trade and investment ties are growing and a long-simmering territorial dispute between Vietnam and China heats up in the South China Sea (NYSE:SE).

Highlighting Vietnam's growing importance as a "friendshoring" destination for U.S. technology companies, executives from Google (NASDAQ:GOOGL), Intel (NASDAQ:INTC), Amkor (NASDAQ:AMKR), Marvell (NASDAQ:MRVL), GlobalFoundries and Boeing (NYSE:BA) are expected to meet on Monday with Vietnamese tech executives and Secretary of State Antony Blinken in Hanoi.

Full details on the U.S.-Vietnam deal have yet to be released.

Still, semiconductors are the centrepiece of an action plan adopted during Biden's visit, a U.S. official said.

Besides possible announcements by U.S. corporations, it is unclear how significant the U.S. administration's contribution to the sector could be, having only $100 million a year for five years available under the CHIPS Act to support semiconductor supply chains globally. A large part of it could go to Vietnam, officials said.

More support to train skilled workers is also part of the deal, as Vietnam faces a major shortage of engineers in the chips sector.

Another key issue is strengthening supply chains of critical minerals, especially rare earths, of which Vietnam has the world's largest deposits after China, according to U.S. estimates, officials said.

Two people familiar with the plans said an agreement on rare earths was expected during Biden's visit, which ends on Monday when he flies back to America.

Details, however, are scant. Past attempts by U.S. companies to partner with Vietnamese rare earth firms have not succeeded, according to a person involved in one recent plan.

Human rights remain a controversial issue, with U.S. officials regularly criticising Hanoi for jailing activists and limiting freedom of expression. Vietnam may show goodwill, with diplomats suggesting activists could be freed.