Toward the end of January, the new US Secretary of State, Marco Rubio, had a call with Vietnam’s Foreign Minister, Bui Thanh Son, during which he ‘…encouraged Vietnam to address trade imbalances.’
This suggestion comes in the context of a new US administration that is pushing the narrative that trade deficits are a sign the US is being ‘ripped off’. (A very superficial reading of how trade works, to be sure, but a reality nonetheless).
With this in mind, there has been a lot of talk in Vietnam, with which the US has its one of its biggest trade deficits, about ways that it might try to extricate itself from this narrative.
This has generally centred around government procurement. However, this approach seems limited. With this in mind, this article looks at two other options: one, reducing market access barriers for US firms, and two, reducing the volume of goods Vietnam exports to the US by way of more selective foreign-invested project approvals.
Firstly, buying more goods, through government procurement, from the US directly has been floated with suggestions buying more LNG and military aircraft could be an option. Neither, however, seems like it will be particularly impactful. With respect to LNG, for example, Vietnam still doesn’t yet have an operational LNG power plant, which means it could only really import as much as it can store.
As for aircraft, it’s been suggested that Vietnam might invest in Lockheed Martin C-130 Hercules aircraft. For reference, the Australian government bought 20 new C-130J Hercules aircraft in 2023 for AU$9.8 billion or US$6.13 billion–about US$306.5 million a pop. At this rate, Vietnam would need to buy quite a lot to make a sizable dent in its trade surplus.
That said, Vietnam doesn’t really have a lot of wiggle room in terms of maintaining its own trade surplus. Though it has a US$123 billion trade surplus with the US, Vietnam’s trade surplus with the world on the whole is only about US$25 billion.
Moreover, this shows that Vietnam is an active importer of goods, just not so much from the US. This is in large part because the high-value goods the US makes are not necessarily the kind of things Vietnam wants, but also the goods it does want that the US produces, like agricultural products, are not as competitive from the US as they are from elsewhere.
This is in large part because the US fruits, meats, and poultry Vietnam imports attract tariffs of between 5 to 20 percent under Most Favoured Nation rates, which can often make them less competitive than the same products from Vietnam’s other trading partners. The EVFTA and CPTPP, for example, have brought tariffs on most of these products down to zero for member states that include major agricultural producers like Europe, Australia, and Canada. (Notably, Trump withdrew the US from the CPTPP in his first presidency).
With this in mind, removing these tariffs could make these US goods more competitive and boost imports from the US. Of course, on Most Favoured Nation principles, this would mean removing these tariffs for all other World Trade Organisation members, too.
Keeping on this line of thought, Vietnam also has a number of non-tariff barriers that have proved problematic for US service exports. Most prominent have been data localisation (also not applicable to members of the CPTPP) and local office requirements for cross-border service providers.
These requirements have seen Netflix prohibited from offering video games on its platform and the Steam video game platform blocked entirely. Moreover, Amazon Prime pulled up stumps altogether in 2023 amid broad speculation that the legal requirements made the proposition of operating in Vietnam untenable.
That is to say, removing these requirements and allowing US cross-border service providers freer access to the Vietnam market could see a jump in service imports, helping to close that trade balance gap. The trade-off, however, would be surrendering some control over what communications materials Vietnam’s consumers are able to access and could come at a financial cost to local digital service providers.
All of that said, not only could Vietnam import more, but there is also a case to be made for exporting less.
In the last few years, it has widely been acknowledged that Vietnam has become an intermediary for Chinese firms looking to circumvent US trade tariffs. These goods often come across Vietnam’s northern border, are relabelled ‘made in Vietnam’, and are then shipped onward with little to no value added yet contributing to both the country’s import and export tallies.
Notably, knocking back some of these foreign direct investment projects may come at an economic cost, it would, however, be relatively small compared to the impact these exports have on Vietnam’s trade surplus with the US.
Incidentally, whereas Vietnam’s exports to the US jumped by about 23 percent in 2024, Vietnam’s imports from China jumped by about 30 percent, according to Vietnam Customs’ data.
That is to say, Vietnam has options when it comes to addressing ‘trade imbalances’: it can directly buy more from the US, it can remove trade barriers to give US firms greater market access, or it could even consider cutting back on FDI project approvals that add to its export tally but add little value to the local economy.
None of these options are great, but then neither are tariffs.