Vietnam was one of the biggest beneficiaries of President Donald Trump’s trade war with China during his first term. But business groups and analysts have warned that Hanoi could become a victim of its own luck if the next president carries out his threat of blanket tariffs when he returns to the White House.
Vietnam has racked up the fourth-largest trade surplus with the United States in recent years, behind China, Mexico and the European Union, as global manufacturers relocate factories from China to avoid the impact of President Trump’s tariffs.
However, the success of this “China plus one” has left Vietnam in a vulnerable position. The economy is highly dependent on the United States, which accounts for nearly 30% of Vietnam’s total exports.
“Vietnam will now face greater scrutiny, especially for goods transiting through Vietnam to avoid tariffs against China,” said Marco Förster, ASEAN director at Desan Sheila & Associates in Ho Chi Minh City. It’s very likely.”
President Trump has vowed to impose tariffs of 60% on imports from China and up to 20% on products from all other countries. Economists at Singaporean bank OCBC warned that such measures could reduce Vietnam’s economic growth rate by up to 4 percentage points from 5% last year.
“If tariffs were imposed on Vietnam, the impact could be devastating,” Foerster said.
President Trump did not mention Vietnam during the recent presidential campaign, but in 2019 he called the country “almost the single worst abuser.”
“Vietnam is using us even worse than China,” he told FOX Business.
Businesses are already in disarray. Hong Son, chairman of the Korean Chamber of Commerce and Industry in Vietnam, said, “Some Korean companies in Vietnam are concerned about the possibility of tariffs imposed by the new Trump administration.” South Korea has long been one of Vietnam’s biggest sources of foreign direct investment, with electronics group Samsung the single largest investor in the country.
Hong said if the U.S. government imposes tariffs on Vietnamese products, South Korean companies may delay or reduce investment and production in the country.
Vietnamese officials are well aware of the potential risks of President Trump’s trade hostility. “Isolationism, protectionist policies and trade wars will only lead to economic recession, conflict and poverty,” Vietnam’s President Luong Cuong issued a flimsy warning at the Asia-Pacific Economic Cooperation Conference in Peru last week. .
“Now more than ever, it is important to move beyond the ‘zero-sum game’ mentality and prevent nationalism from distorting policy-making,” he said.
While Southeast Asia as a whole has benefited from the US-China trade war, no country has been more successful in attracting investment than Vietnam, thanks to its proximity to China, business-friendly policies and incentives.
Foreign investment reached $36.6 billion last year, and Vietnam’s trade surplus with the United States soared to more than $104 billion, nearly triple the $38 billion level in 2017, when Trump took office. Thailand is a distant second in the region, with a US trade surplus of nearly $41 billion.
Relations between the United States and Vietnam have strengthened since President Trump left office. The two countries upgraded their relationship to a “comprehensive strategic partnership” last year, making it the highest level of diplomatic relations offered by Hanoi. President Joe Biden called Vietnam “a major world power and a leader in this important region,” stripping it of the “currency manipulator” label imposed by President Trump.
The US government is also supporting efforts to expand semiconductor production in Vietnam as part of a campaign to limit China’s access to advanced chip manufacturing.
Experts say Vietnam has tightened scrutiny of Chinese investment and launched anti-dumping investigations to appease President Trump, and has run trade surpluses by purchasing munitions, commercial aircraft and liquefied natural gas from U.S. companies. He said there is a possibility that measures will be taken to reduce the size.
“The broader challenge is that Vietnam’s relatively small economy has limited capacity to increase imports from the United States,” said Peter Mumford, head of Southeast Asia at Eurasia Group.
“On the FDI front, Hanoi may slightly increase investment in the US, but this will do little to ease the US government’s trade concerns.”
Vietnam has cultivated friendly relations with both the United States and China under a non-aligned foreign policy known as “bamboo diplomacy.” But if purchases from the United States increase, Vietnam will need to be careful not to anger its largest trading partner and neighbor, China.
Investment from China is also rapidly increasing, increasing by 80% in 2023, along with widespread foreign direct investment. This year, the largest number of new projects in Vietnam came from China.
Foerster noted that many Chinese products transit through Vietnam “sometimes under dubious rules of origin and false ‘Made in Vietnam’ labels to avoid tariffs.”
He said Hanoi is working to establish stricter standards for product labels, which could help avoid the ire of some in the incoming US administration.
Thuy Anh Nguyen, a director at Vietnam-focused asset management firm Dragon Capital, said investments from Chinese companies could be subject to special scrutiny from Hanoi, but the relocation of manufacturing from China Vietnam will continue to attract more FDI, he said.
Hanoi is “likely to actively adjust export and import practices, negotiate trade agreements, and strengthen compliance with rules of origin to reduce tariff risks,” it added.
Additional reporting by Haohsiang Ko in Hong Kong
