Can Vietnam’s Economy Withstand the Impact of Trump’s Tariff Hike?

Vietnam’s export-driven economy is confronting a formidable challenge after the United States announced a 20% tariff on all Vietnamese exports, replacing the previous preferential rates of 2% to 10% that had fueled two decades of rapid growth.

This abrupt policy shift puts at risk Vietnam’s $135 billion export flow to its largest market, with key sectors like textiles, footwear, seafood, and furniture expected to lose their vital cost advantage.

Analysts estimate that the new tariff could reduce Vietnam’s exports to the US by up to 25% in the medium term, potentially shaving more than 2% off the country’s annual economic output.

Will Transshipment Crackdown Disrupt Regional Supply Chains

The deal also introduces a punitive 40% tariff on goods transshipped through Vietnam, a measure aimed at curbing the rerouting of Chinese products to evade US tariffs. Given Vietnam’s deep integration with Chinese supply chains, China is both its largest trading partner and a key supplier of manufacturing inputs; any retaliatory action from Beijing could further destabilize Vietnam’s export sector and disrupt regional production networks.

This uncertainty is compounded by the lack of clarity on how transshipment will be defined and enforced, raising concerns for multinational corporations that rely on Vietnam as a manufacturing hub.

Did you know?
Vietnam’s export sector has grown nearly threefold since 2018, rising from under $50 billion to about $137 billion in 2024, largely due to shifting supply chains amid US-China trade tensions. This rapid ascent now faces its most severe test in the era of renewed global protectionism.

Preferential US Market Access Comes with Trade-Offs

In exchange for accepting the 20% tariff, Vietnam has secured zero-tariff access for US products, including large-engine vehicles and other goods previously subject to import duties.

While this opens new opportunities for American exporters, it exposes Vietnamese producers to heightened competition at home, potentially squeezing domestic industries already reeling from higher export costs.

The asymmetry of the agreement, where US exports to Vietnam remain modest compared to the reverse, limits Hanoi’s leverage and underscores the transactional nature of the deal.

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Vietnam’s Growth Model Under Strain Amid Global Protectionism

Vietnam’s acute reliance on exports, which accounted for 87.2% of its GDP in 2023, leaves it highly vulnerable to external shocks. The US alone absorbed nearly a third of Vietnam’s total exports last year, making the country’s growth targets precarious in the face of rising trade barriers.

The apparel and electronics sectors, which have driven Vietnam’s industrial expansion, now face increased costs and regulatory uncertainty, prompting some multinationals to reconsider investment plans.

Any significant decline in US-bound exports could derail Vietnam’s ambition to position itself as a sustainable alternative to China in global supply chains.

Regional and Global Repercussions Intensify Economic Risks

The new US-Vietnam trade framework has sent ripples through Asian export markets, with other countries viewing Vietnam’s acceptance of steep tariffs as a cautionary tale. India, for example, is reassessing its own trade strategy in light of the US-Vietnam deal.

Meanwhile, the risk of Chinese retaliation looms large, as Beijing may view the agreement as detrimental to its interests and respond with measures that could further strain Vietnam’s economy.

The broader implications for global trade are significant, as protectionist policies threaten to fragment supply chains and undermine the growth prospects of export-dependent economies across Asia.