Last week, the President of the United States Donald Trump announced sweeping tariffs on imports from all over the world. Among them was a 46 percent tariff on imports from Vietnam. This has broad implications for Vietnam’s economy with about a third of its exports going to the US, the equivalent of about a quarter of its GDP.
With this in mind, this article looks at what Trump hopes to achieve and the way he intends to achieve it, both of which make it look a lot like these tariffs are here to stay. That being the case, it also looks at the implications for Vietnam and ways it might be able to formulate an impact-mitigating response.
Why tariffs?
Trump’s Rose Garden speech last Wednesday was long and covered a lot of ground but at its heart were a couple of core concepts.
Firstly, he wants to use tariffs to raise revenue “to reduce our taxes and pay down our national debt”. This is in line with a belief that at one time tariffs were a key source of the nation’s wealth.
“From 1789 to 1913, we were a tariff-backed nation and the United States was proportionately the wealthiest it has ever been….then in 1913, for reasons unknown to mankind, they established the income tax so that citizens rather than foreign countries would start paying the money necessary to run our government,” he said.
Secondly, he believes that tariffs will bring jobs back to the United States and “supercharge” its industrial base. To really drive this message home, he had a cohort of blue collar workers in the audience as he made the announcement. This also speaks to the support he has among a key segment of the American electorate for these ideas, whether businesses or economists like them or not.
That is to say, this is what Trump believes and he is not alone in believing it. These goals, however, will require months, maybe even years to realise which, all in all, makes it look very much like the Trump administration is in it for the long haul.
(Notably, there has been some suggestion that it might be a negotiating tactic or a way of reducing interest rates on US treasuries, among other theories. However, there was little said in the Rose Garden on Wednesday that would support these claims.)
Why 46 percent?
Not only did Trump lay out long-term goals on Wednesday but he also presented a long-term strategy to achieve said goals.
Specifically, he said that 46 percent is half of what Vietnam taxes US imports through tariffs and non-trade barriers like currency manipulation. This figure was reached by dividing Vietnam’s trade surplus with the US by Vietnam’s exports to the US and then dividing it by two.
Whether this makes sense or not, this suggests that in the mind of the President of the United States, a trade surplus is indicative of unfair trade practices which can be quantified using this formula.
More importantly, this effectively pegs tariff rates to trade surpluses which track supply chains, a move only necessary if the Trump administration foresees these tariffs in place long enough that firms might consider relocating their production lines.
So, how will this impact Vietnam?
Jobs will be lost. As prices rise in the US for products like clothing and apparel or electronics demand should decline which will lead to a reduction in production and subsequently job losses.
That said, it’s unlikely these jobs will go to the US where labour costs are far higher than in Southeast Asia–even after adding a 46 percent tariff, labour in Vietnam is still 20 times cheaper.
Supply chains are unlikely to shift but they are also unlikely to expand either. Specifically, whereas Vietnam saw a boom in FDI over the last few years as firms sought to circumvent US tariffs on China, Trump’s formula-based tariff structure renders this strategy pointless.
This is also particularly concerning for domestic firms many of which are still over-leveraged post-COVID with slower growth making their debts harder to clear. In the event those debts are in US dollars, a stronger greenback as a result of the new tariffs may add to those woes. That’s not to mention the knock-on effect as incomes fall and consumer spending slows.
Finally, it’s also worth noting, that slower growth also has broad social implications. There were still about 2 million Vietnamese, or about 2 percent of the population, living in poverty in 2020/2021, according to the United Nations Multidimensional Poverty Index 2024. Bringing that number down further may become more challenging (USAID cuts probably haven’t helped either).
That’s not to say Vietnam is without options.
Negotiation, mitigation, retaliation
Vietnam can try to negotiate. It’s been suggested it might drop most-favoured-nation tariff rates to zero in exchange for some sort of reprieve or at least delayed implementation. It’s also been suggested Vietnam might agree to buy more US goods. This, however, doesn’t really need to be negotiated, Vietnam would simply need to make these changes and for these changes to be reflected in its balance of trade with the US–a lower surplus means lower tariffs.
On that note, even if a delay or cut could be negotiated this simply makes Vietnam more competitive, driving a supply chain shift and increasing its surplus and by extension its tariff rate.
It can try to find new markets, however, Vietnam is not alone in being hit with US tariffs, just about everyone has been to some extent. In fact, the odds of a global recession have risen significantly since the announcement which makes it seem unlikely that anyone will be increasing their imports of anything, any time soon.
It can put a moratorium on the top-up tax, introduced as part of the OECD GloBE scheme. The Trump administration has said the US will not legislate the global minimum tax in which case exempting US firms would make doing business in Vietnam cheaper for those firms.
It can retaliate. This seems unlikely in that Vietnam imported just US$13.1 billion from the US in 2024, according to United States Trade Representative estimates, and therefore its impact would be minimal. Moreover, less US imports just means a bigger surplus which, again, means a bigger tariff.
What is probably the better option, however, is to look at growing its economy in sectors other than manufacturing. Mining, for example, accounts for just 2-3 percent of Vietnam’s GDP and that number has been falling. Vietnam, however, has huge reserves of rare earths, gold, and a range of other ores and minerals.
Service exports also seem to be exempted from tariff calculations. Business process outsourcing, customer service, computer software development, and app development, for example, could all be expanded.
Moreover, pushing through the new KRX trading system for the stock exchange and relaxing foreign ownership limits may help to bring in capital to finance research and development and innovation to help grow those service sector exports.
On that note, it’s also worth mentioning that Vietnam’s debt to GDP is only about 37 percent. This means there is plenty of room to borrow to invest in big infrastructure projects like high-speed rail, or skills training for retrenched workers, or supporting projects in tariff-exempt industries.
That is to say, that the situation is not great and it seems inevitable that the Vietnamese economy will take a hit from the Trump administration’s new tariff regime. Vietnam’s economy, however, is still in many areas very undeveloped and driving investment in these areas may help to mitigate some of the impacts.
Of course, all of that said, the Trump administration is unpredictable, and it is not unforeseeable that it may change course at the drop of hat, with the situation a week from now entirely different. Based on what Trump said in his Rose Garden speech, however, coupled with the formula he intends to use to realise these goals, this does all look to be a long-term strategy and it may be prudent for stakeholders doing business in Vietnam to start treating it as such sooner rather than later.