Following a series of technical and ministerial-level negotiations between the United States and Vietnam, in late July US President Donald Trump imposed a 20 percent tax on all Vietnamese imports and a 40 percent rate on commodities classified as “transhipping” — Chinese products rerouted abroad to take advantage of lower tariffs. The new tariffs threaten to undermine Vietnam’s 8 percent growth goal in 2025 and expose its export-driven economy, particularly the textile and machinery sectors. At the same time, it presents the country with a unique chance to ascend the fragmented global supply chain.
Nguyen Van Tung works as a Project Manager at the Rosa Luxemburg Foundation’s Southeast Asia Office in Hanoi.
Although the revised tariff was reduced from the initial rate of 46 percent, the outcome is not what the Vietnamese government hoped for. Since April 2025, Vietnam had sought tirelessly to negotiate a lower rate (rumoured to be between 11 and 15 percent) from its fifth “comprehensive strategic partner”, the highest level in Vietnam’s diplomatic system.
The Vietnamese government adopted a pragmatic approach in its trade negotiations with the US through a series of prompt, proactive measures. It offered the US full market access, and practically eliminated all tariffs on US goods. In addition, the country quickly showed its commitment to fixing its huge trade imbalance. Vietnam’s Vice Prime Minister Ho Duc Phoc affirmed that the country would procure 250 Boeing aircraft, several military planes, 6 billion dollars’ worth of American liquefied natural gas (LNG), and over 90 billion dollars in other commodities and equipment. Domestically, Vietnamese authorities implemented strict measures to address US concerns over transshipping, including intensified inspection on exports to the US and stricter monitoring of supply chains.
However, the Vietnamese Prime Minister emphasized that trade talks with the US must be viewed in the broader context of Vietnam’s global trade relations, which include 17 free trade agreements and partnerships with 60 other markets, and should not be allowed to compromise relationships with other trading partners. Vietnam, he explained, stands firmly on its core principle of “opening the market, not compromising sovereignty”, and would refrain from “taking sides” in the ongoing US-China trade conflict.
It Could Have Been Worse
Although 20 percent is higher than Vietnam had hoped for, it seems to be “the least unfavourable outcome” amidst the ongoing trade conflict between the US and China in which Vietnam and several other regional countries find themselves caught. This rate is just 1 percent higher than that imposed on Vietnam’s ASEAN neighbours and export competitors such as Thailand, Cambodia, Indonesia, Malaysia, and the Philippines. It is also significantly lower than the 25 percent imposed on Brunei, or the 40 percent imposed on Laos and Myanmar. Singapore is the sole ASEAN member to obtain a 10 percent baseline tariff, as it has a free trade agreement with the US and runs a trade deficit with them.
Taking into account that Vietnam has the third-largest trade surplus with the US (after China and Mexico), the tariffs could have been worse. In 2024, Vietnam’s trade surplus with the US was 123.5 billion dollars, and yet the Trump tariffs are significantly lower than those imposed on other major exporters, including India (25 percent), Canada (35 percent), and China (30 percent).
In the long run, Vietnam could further enhance the diversification and overall balance of its export markets to mitigate shocks from present and future trade challenges.
After nearly 40 years of the Doi Moi economic reforms, Vietnam’s economy is deeply integrated into global supply chains, with total import-export turnover equal to 1.5 times its GDP. Nevertheless, a majority of exports are directed towards a few key markets such as the US, China, the EU, ASEAN, South Korea, and Japan, which collectively account for over 65 percent of Vietnam’s total export turnover. Among these six markets, the US is the most important, constituting nearly 30 percent of Vietnam’s GDP. As a result, Vietnam’s export-driven economy is particularly vulnerable to US tariffs. Machinery and equipment (18.5 percent of all exports to the US in 2024) and textiles (13.5 percent) could be the most affected.
Since 2018, the country’s strategic location has allowed Vietnam to benefit from the West’s so-called “China Plus One” strategy, as companies diversified or relocated their manufacturing from China to Vietnam to avoid tariffs. During this period, Vietnam’s export volume to the US has risen from 40 billion dollars in 2018 to 136.5 billion in 2024. Correspondingly, imports from China to Vietnam surged from 49 billion in 2018 to 138 billion dollars in 2024, representing 22 percent of the country’s total import value that year. This strategic edge reversed following Trump’s return, as Vietnam is among the nations that are considered transshipment hubs for Chinese goods.
Crucially, the transshipping provision, apparently targeting Chinese goods routed through Vietnam, is yet to be specified. This creates uncertainties among foreign companies, which make up 70 percent of Vietnam’s total export value. If transshipped goods are interpreted strictly, a considerable proportion of products exported from Vietnam could be classified as such, given that Vietnam’s economy depends significantly on its northern neighbour for components and raw materials in sectors such as textiles, garments, footwear, and electronics. In particular, it is estimated that around 60 percent of raw materials used in Vietnam’s garment production are imported, 80 percent of which originate from China. Should such a scenario come to pass, the approximately 7,000 garment enterprises that generated 3 million jobs in 2024 alone will be extremely vulnerable.
The new US tariff policy has already triggered significant restructuring among foreign direct investment enterprises in Vietnam. According to a June 2025 survey by PwC Vietnam, 86 percent of businesses expressed concern about the tariffs’ negative impact, including declines in orders, supply chain disruption, and increased input costs. Additionally, 44 percent of companies are reportedly diversifying their sourcing to other countries. The tariffs pose major obstacles to Vietnam’s aim of achieving 8 percent GDP growth in 2025 and double-digit growth for 2026–2030. Moody’s Analytics and the International Monetary Fund both revised their growth forecast for 2025 downward to approximately 5 percent, attributing the change to the direct effects of US policy. In order to achieve its ambitious development objective of become a high-income country by 2045, Vietnam will have identify alternative growth drivers to supplement the declining export market.
The End of Rules-Based Globalization?
The Trump administration appears to be employing tariffs as a strategic instrument to restructure the global supply chain, with the objective of displacing China from its rising economic position. In order to engage in trade with the US, nations must downgrade their economic relations with China, maintain stringent controls over their supply chains, and prevent the transhipment of Chinese goods. US tariff policy could signify a novel form of globalization, in which national security and geopolitical competition are prioritized over economic efficiency. Consequently, the current models of offshoring, which are founded on economic efficiency, will be gradually replaced by “friend-“ or ally-shoring”, resulting in the further fragmentation of global supply chains.
The era of rules-based globalization is coming to an end, replaced by economic uncertainty, trade retaliation, protectionism, and consequently the fragmentation of global trade. This poses a significant challenge to Vietnam’s “bamboo diplomacy”, which emphasizes the principles of strategic self-determination, multilateralism, diversification, and balance among major powers, particularly the US and China. The ongoing trade war also highlights the vulnerability of Vietnam’s export-oriented growth strategy, currently reliant on a limited number of primary export markets.
Despite the obstacles it poses, US tariffs also offer Vietnam a rare chance to ascend the shifting global value chain.
In the long run, Vietnam could further enhance the diversification and overall balance of its export markets to mitigate shocks from present and future trade challenges. Establishing an official partnership with BRICS in June 2025, enabling Vietnam to foster or deepen cooperation with emerging and developing countries in the Global South, may constitute an important aspect of this strategy.
Despite the obstacles it poses, US tariffs also offer Vietnam a rare chance to ascend the shifting global value chain, and convert the country into not only an alternative assembly and manufacturing hub, but also a regional technology centre for semiconductor and electronics industries. The first seven months of 2025 witnessed the emergence of high-tech and high-value-added projects in Vietnam from global big tech companies such as NVIDIA (AI research and AI data centres) and Intel (expansion of advanced chip production). Nevertheless, this elevation will stem not only from the country’s strategic geopolitical location but also necessitate institutional improvements that foster a transparent and conducive investment climate, a self-sufficient and sustainable supply chain with decreased dependency on China, fundamental infrastructure upgrades, high-quality human resources, and strict adherence to international trade regulations.
This intricate task will pose a daunting test of resilience for Vietnam in the years to come, as the country navigates an increasingly fragmented geopolitical environment and mounting economic pressures.
This article first appeared in nd.Aktuell in collaboration with the Rosa Luxemburg Foundation.