Vietnam's Electronics Imports Surge Amid AI Boom and Soaring Chip Prices

Imports of computers, electronic products, and components into Vietnam have surged by over 68% year-on-year to approximately $162 billion in the first eight months of the year, according to data from the General Department of Vietnam Customs. This figure significantly outpaces the country's exports of these items, which grew by 51% to $101 billion over the same period, resulting in a trade deficit of around $60.5 billion in this sector. Experts and authorities attribute this sharp increase in imports primarily to the escalating global demand driven by the artificial intelligence (AI) boom and the soaring prices of semiconductor components, particularly DRAM and NAND flash chips. As Vietnam's electronics industry largely relies on processing imported components for assembly and subsequent export, the need to adapt to the production cycle of AI-related equipment has fueled import growth. Michael Kokalari, Chief Economist at VinaCapital, noted that nearly all of the growth in high-tech exports over the past two years has come from computers and electronics, boosted by the AI investment wave. Yuanta Securities shares this view, stating that demand for electronic products and components remains strong. Customs data also indicates a strong import trend in recent months, averaging over $25 billion per month. This aligns with Vietnam's production activity picking up in mid-Q3, as assessed by S&P Global. Andrew Harker, Director of Economics at S&P Global Market Intelligence, observed that by August, production output and new orders had regained the momentum seen at the beginning of the year and had significantly surpassed it. However, the question remains why imports are growing faster than exports, leading to the $60.5 billion trade deficit. At a meeting on September 8, Deputy Prime Minister Pham Gia Tuc instructed the Ministry of Industry and Trade, along with other ministries and localities, to clarify the structure and purpose of these corporate imports to devise appropriate solutions and promote production and exports. Preliminary analyses suggest that the discrepancy may stem from market characteristics and production cycles. Specifically, input prices have risen sharply recently, especially for DRAM and NAND flash memory chips, amplifying the import value. Research firm TrendForce reported that contract prices for DRAM and NAND flash memory chips had previously reached record highs of up to 60% in the second quarter. Through Q3, memory chip prices are projected to increase by 13-18%, while NAND flash memory chips are expected to become 10-15% more expensive. According to Michael Kokalari, the rise in prices for computer memory and oil contributed about half of Vietnam's overall trade deficit as of July. Yet, the increased input costs may not be immediately reflected in the prices of exported products. S&P Global notes that major equipment manufacturers have observed that the impact of rising input costs on the pricing of their output requires time. Additionally, the production cycle contributes to this lag. Components are often imported first, then undergo manufacturing, assembly, and export as finished goods. Therefore, when orders increase, the demand for inputs can rise sooner. In a recent macroeconomic analysis, the ACBS Securities research team stated that the high import of electronic components and computers is "entirely consistent with an explosive production cycle" for the technology and production materials sector, which is heavily dominated by FDI enterprises. The import scale of $160 billion also indicates the substantial demand for inputs in Vietnam's electronics industry. This raises the question of how deeply domestic enterprises can participate in the supply chain for these factories. According to a report by SSI Securities, the high proportion of imported electronic components signifies that technology transfer and the development of domestic supply chains are top policy priorities. The Ministry of Industry and Trade acknowledges that the electronics industry remains significantly dependent on foreign supplies of components, semiconductors, equipment, and high-tech raw materials, with limited domestic value addition. However, this also presents an opportunity for the development of the domestic ecosystem. ACBS Securities believes that policy direction is increasingly focused on addressing this issue. Alongside policies to attract selective FDI aimed at integrating domestic enterprises, new customs and import-export regulations are expected to tighten supervision against origin fraud while supporting domestic suppliers in deeper participation in the value chain. Furthermore, Decree 29, which updates the import-export management framework, and the recently passed Customs Law (amended), help reinforce the institutional and compliance aspects. However, the actual impact on increasing the localization rate and minimizing trade defense risks from partners will take time to materialize, according to ACBS analysis. Source: VnExpress