Vietnam has emerged as an important supply chain node in global trade. It is not that it lacks in successfully courting multinational corporations to establish national or regional manufacturing hubs inside its borders. All of this progress and momentum is suddenly in jeopardy due to recent news about new tariffs imposed by the U.S. Vietnam has done well for itself by capitalizing on its advantage of low labor costs and welcoming government policies. Now, the nation finds itself in a historic moment that may have profound impact on potential economic expansion and foreign investment.
Vietnam’s meteoric rise in the global market can be directly tied to their calculated acceptance of outside trade. The nation has had great success luring a who’s who of some of the world’s largest firms. Nike, Adidas, Uniqlo, and Apple Inc. recently started producing their goods in its factories. By 2024, these factories were making a staggering 50% of Nike’s footwear and 28% of its apparel. What’s more, Adidas produced 39% of its shoes from Vietnam last year. Led by this increase in foreign direct investment, Vietnam’s manufacturing sector has proven strong. Additionally, it has made the country the center of some global brands’ supply chains.
In 2024, Vietnam’s goods trade surplus with the US soared to an unprecedented $123.5 billion. This historic number more than triples the previous years. Exports of goods to the U.S. made up about 30% of Vietnam’s total trade turnover in the first 11 months of this year. This impact has not gone unnoticed by U.S. officials. They have come down hard on Vietnam’s large exports, calling them “nontariff cheating.” The other shoe dropped last month when the U.S. imposed new antidumping duties on imports from Vietnam. This misguided move could severely undermine efforts to attract new domestic manufacturing bases to the country.
The implications of these new tariffs go far beyond the immediate economy. Not according to OCBC Bank’s economists, who expect Vietnam’s growth to slide by as much as 1.2 p.p. at least this year. This drop is a precautionary effect of the oil-and-gas-related levies recently enacted. These tariffs would undermine one of the country’s most successful economic attraction strategies—foreign direct investment. This has the potential to reverse a lot of progress that Vietnam has made to become a manufacturing center.
“The reciprocal tariffs on ASEAN and India will hurt the ‘China+1’ strategy that has benefited the region for some years now,” – economists at OCBC Bank.
Vietnam’s government has acknowledged the potential impact of these tariffs, and is moving quickly to find potential fixes. To mitigate the impact, Vietnam’s party chief, To Lam, proposed an ambitious offer: he stated that Vietnam would remove all levies on U.S. imports, effectively bringing the tariff rate to 0% if the Trump administration reciprocates by eliminating tariffs on Vietnamese exports to the U.S.
“We’ll go to zero tariffs,” – Vietnam’s party chief To Lam.
Despite these overtures, challenges remain. The large trade surplus with the U.S., coupled with Vietnam’s role in facilitating the rerouting of Chinese companies’ supply chains, complicates discussions with Washington. The analysts said that these are the key sticking points that may prevent Vietnam from striking a good deal with U.S. negotiators.
The stakes are particularly high for Vietnam’s burgeoning economic landscape. Almost 90% of its annual gross domestic product (GDP) stems from exports of goods and services, per World Bank estimates. This deep dependence on international trade highlights the risk of any disruptions caused by U.S. tariffs.
As businesses figure out how to tread on this uncharted ground, it’s clear that many are doing their due diligence. The potential for lower tariffs had been a powerful driver of the investor optimism that had drawn many to Vietnam’s burgeoning market. Now, with new perfunctory duties established, policymakers will be reluctant to dedicate resources needed to make long-term investments in the region’s future prosperity.
As the economists at the Environmental Defense Fund have pointed out, re-tooling global supply chains in consideration of these new market dynamics will not occur overnight.
“It will take time for global supply chains to adjust,” – economists at OCBC Bank.
Vietnam is sadly getting the backlash from U.S. tariffs today. This moment is an important and rare opportunity that will help determine its future role in global trade. To ensure continued economic growth and development, our nation cannot afford to mishandle these challenges. Keeping its edge as a most desirable port of call for manufacturers big and small will be the bedrock of that fight.