Vietnamese-Chinese relations deteriorated significantly after Hanoi instituted a ban in March 1978 on private trade, mostly affecting Sino-Vietnamese. Following Vietnam's December 1978 invasion of Cambodia, China launched a retaliatory incursion over Vietnam's northern border. Faced with severance of Chinese aid and strained international relations, Vietnam established even closer ties with the Soviet Union and its allies in the Council for Mutual Economic Assistance (Comecon). Through the 1980s, Vietnam received nearly $3 billion a year in economic and military aid from the Soviet Union and conducted most of its trade with the Union of Soviet Socialist Republics (U.S.S.R., or Soviet Union) and other Council for Mutual Economic Assistance countries. However, Soviet and East bloc economic aid ceased after the breakup of the Soviet Union.

Vietnam did not begin to emerge from international isolation until it withdrew its troops from Cambodia in 1989. Within months of the 1991 Paris Agreements, Vietnam established diplomatic and economic relations with ASEAN as well as most of the countries of western Europe and Northeast Asia. China reestablished full diplomatic ties with Vietnam in 1991, and the two countries concluded a land border demarcation agreement in 1999.

In the past decade, Vietnam has recognized the increasing importance of growing global economic interdependence and has made concerted efforts to adjust its foreign relations to reflect the evolving international economic and political situation in Southeast Asia. The country has begun to integrate itself into the regional and global economy by joining international organizations. Vietnam has stepped up its efforts to attract foreign capital from the West and regularize relations with the world financial system. In the 1990s, following the lifting of the American veto on multilateral loans to the country, Vietnam became a member of the World Bank, the International Monetary Fund, and the Asian Development Bank. The country has expanded trade with its East Asian neighbors as well as with countries in western Europe and North America. Of particular significance was Vietnam's acceptance into the Association of Southeast Nations (ASEAN) in July 1995. Vietnam joined the Asia-Pacific Economic Cooperation forum (APEC) in November 1998 and hosted the ASEAN summit in 2001. Vietnam currently holds observer status in the World Trade Organization (WTO) and is applying for full membership.

While Vietnam has remained relatively conflict-free since its Cambodia days, tensions have arisen in the past between Vietnam and its neighbors (especially China). Vietnam and China each assert claims to the Spratly Islands (as does Taiwan), an archipelago in a potentially oil-rich area of the South China Sea. Conflicting claims have produced over the years small-scale armed altercations in the area; in 1988 more than 70 people were killed during a confrontation between China and Vietnam. China's assertion of control over the Spratly Islands and the entire South China Sea has elicited concern from Vietnam and its Southeast Asia neighbors. The territory border between the two countries is being definitively mapped pursuant to a Land Border Agreement signed December 1999, and an Agreement on Borders in the Gulf of Tonkin signed December 2000. Vietnam and Russia declared a strategic partnership March 2001 during the first visit ever to Hanoi of a Russian head of state, largely as an attempt to counterbalance the People's Republic of China's (P.R.C.) growing profile in Southeast Asia.