Vietnam Rises as a Trade Victor, But Trump’s New Tariffs Could Cause Disruptions

Vietnam is often recognized as a benchmark for engaging in international trade, attracting some of the world’s largest corporations to set up manufacturing sites producing various goods, ranging from footwear to electronics, that are found worldwide.

However, there are growing worries that U.S. President Donald Trump’s strict tariffs may hinder Vietnam’s bold growth objectives, even with diplomatic gestures made towards Washington that economists believe are unlikely to alter existing policies anytime soon.

Trump imposed a notable 46% import tariff on the Southeast Asian country—one of the highest among more than 180 nations targeted—striking a significant blow to an economy that relies on exports for nearly 90% of its annual gross domestic product in 2023, according to World Bank estimates.

These new tariffs might reduce Vietnam’s economic growth by 1.2 percentage points this year, economists at OCBC Bank estimate, prompting a revision of the GDP forecast for the nation to 5% by 2025. This represents a considerable setback from Hanoi’s goal of achieving “at least 8%” growth this year.

The Southeast Asian economy has already experienced a slowdown this year, growing 6.93% in the first quarter, down from 7.55% in the previous quarter.

Vietnam has become a pivotal manufacturing center for numerous companies that market goods in the U.S., including prominent multinational retailers like Nike, Adidas, Uniqlo, and Apple Inc, drawn by a mix of comparatively low labor costs and supportive governmental policies.

As per Nike’s annual earnings report for 2024, factories in Vietnam were responsible for 50% of its footwear production and 28% of apparel, while Adidas sourced 39% of its footwear from Vietnam last year. Apple has similarly expanded its manufacturing footprint in Vietnam, producing approximately 20% of its iPads and 90% of its wearable devices like the Apple Watch there.

Following the onset of the U.S.-China trade war during Trump’s initial term in 2018, a significant number of Chinese manufacturers relocated to Vietnam to circumvent U.S. tariffs.

Vietnam’s trade surplus in goods with the U.S. surged to a record $123.5 billion last year, up from less than $40 billion in 2018, according to U.S. statistics that estimate Vietnam’s goods exports to the U.S. at $136.6 billion for 2024.

The newly imposed tariffs by Trump last week could potentially cut Vietnam’s total goods exports by as much as 40% this year, according to OCBC Bank, which cited figures from Vietnam’s customs authority indicating that exports to the U.S. represented around 30% of its total trade volume.

These new tariffs might also diminish the attractiveness of establishing a manufacturing base in Vietnam, impacting foreign direct investment into the nation.

However, as is frequently the case with international trade data, there are inconsistencies between the official figures provided by the U.S. and Vietnam, attributed partly to differing valuation methodologies.

Nguyen Thu Oanh, head of the inflation department at the statistics office, mentioned on Sunday that the latest U.S. tariffs could drive some foreign companies to relocate segments of their production out of Vietnam, according to a Bloomberg report.

“The reciprocal tariffs on ASEAN and India will negatively impact the ‘China+1’ strategy that has benefited the region for several years,” the economists at OCBC Bank commented, adding that “it will take time for global supply chains to readjust.”

Beyond China, Vietnam will encounter a more complex journey in negotiating a deal with Washington compared to other Asian nations, according to Chetan Ahya, chief Asia economist at Morgan Stanley. This complexity arises from its substantial trade surplus with the U.S. and its role in accommodating the redirection of Chinese supply chains.

Following a phone call with Trump last Friday, Vietnam’s party chief To Lam reported that the nation is keen to eliminate all tariffs on U.S. imports, potentially bringing the tariff rate down to 0%, if the Trump administration reciprocates for Vietnamese exports to the U.S.

He reiterated Hanoi’s commitment to increasing imports from the U.S. to balance the bilateral trade surplus and urged American companies to ramp up their investments in Vietnam.

In response to inquiries regarding Vietnam’s zero-tariff proposal, White House trade advisor Peter Navarro stated that it was insufficient to justify the cancellation of the new tariffs.

“When they come to us and say ‘we’ll go to zero tariffs,’ that means nothing to us because it’s the nontariff violations that are significant,” Navarro told CNBC’s “Squawk Box.”

Specific examples of “nontariff violations” pointed out by Navarro included Chinese products being channeled through Vietnam, intellectual property theft, and value-added tax on goods, which Trump has denounced as covert trade barriers.

Leading up to Trump’s implementation of extensive “reciprocal tariffs,” Hanoi proposed trade adjustments, including lowering tariffs on several U.S. imports like liquefied natural gas and automobiles and supporting trials for the Starlink satellite internet service within the country.

In response, China implemented a 34% additional tariff on all U.S. goods; however, many Asian economies opted not to retaliate directly.

“Negotiations between Asian economies and the U.S. may not produce desired outcomes, particularly for nations with large trade surpluses with the U.S., like Vietnam,” remarked Michael Wan, senior Asia economist at MUFG Bank.

Although Vietnam’s talks with the Trump administration could “result in some positive outcomes,” it is improbable that the U.S. will drastically cut tariffs from suggested levels, he noted.

The retaliatory measures from China have added complexity to Vietnam’s discussions with the U.S., as policymakers are concerned that Chinese firms might take advantage of the more lenient tariffs in Vietnam.