TURNING TARIFF CHALLENGES INTO LEVERAGE

Vietnam is affirming its strong export position in the United States, with two-way trade reaching US$80 billion and a trade surplus of US$64.8 billion as of May 2025, ranking fifth globally. On July 2, U.S. President Donald Trump announced on Truth Social that Vietnamese goods are subject to a 20% tariff - significantly lower than Thailand’s and Cambodia’s 36%, Laos’s 40%, and China’s 54% (20% base plus 34% reciprocal), giving Vietnam a distinct competitive advantage.

However, the risk of a 40% tariff on “transshipped” goods (those merely packaged or relabeled in Vietnam) and strict technical barriers require Vietnamese businesses to restructure their supply chains, increase localization rates, and capitalize on free trade agreements (FTAs) to maintain their foothold in the world’s largest market.

Mr. Do Ngoc Hung, Vietnam's Trade Counselor in the U.S., warned: “The U.S. remains a key destination for global exporters. However, with tariff-increasing policies on foreign goods, the cost of entering this market is rising, directly affecting both importers and American consumers.” If products fail to meet the “substantial transformation” criteria, Vietnamese goods, especially pangasius, apparels, and electronics, face the risk of being subject to 40% tariffs.

Key export sectors are actively adapting

The apparel and footwear sector, which contributes nearly US$50 billion annually, is under pressure to meet stringent origin requirements. According to the Vietnam Textile and Apparel Association (VITAS), imports of raw materials dropped by 6-12% in May 2025 while exports surged. Chairman of VITAS Vu Duc Giang said: “Many large companies are quickly diversifying sources of fabric, leather, and accessories from Thailand, Pakistan, Indonesia, and others. At the same time, exporters are investing in automated production lines, raising the localization rate to over 50%.”

The electronics sector, ranking fifth globally in exports, is under pressure due to reliance on imported components. Ms. Do Thi Thuy Huong, Executive Board Member of the Vietnam Electronic Industries Association (VEIA), cautioned: “The high proportion of imported components risks classifying electronic goods as transshipping, leading the sector’s exports to a difficult position.”

“To overcome these challenges and strengthen their role in the global value chain, Vietnamese electronics companies must continue diversifying supply chains, investing in R&D, and restructuring production,” she stressed.

The agriculture sector reached US$33.84 billion in export value in the first half of 2025, up 15.5% year on year. Stateside pangasius shipments valued US$158 million, but the 40% tariff threat still looms. Experts warn that the new reciprocal tariffs (20% and 40%) might reduce Vietnam’s total export value of agricultural, forestry, and fishery products by around 20% in the second half of the year. The wood industry is accelerating FSC certification while agricultural producers are applying QR and blockchain technologies to ensure traceable origins.

Diversification and digitalization strategies

To benefit from the 20% tariff and avoid the 40% risk on transshipping in the US market, according to experts, Vietnamese companies must focus on three core strategies: Diversifying supply chains, enhancing value-added content, and digitizing management. These strategies not only help navigate tariff barriers but also bolster long-term competitiveness.

Mr. Do Ngoc Hung recommended: “Businesses need to reinforce resilience and diversify supply chains, reduce dependence on raw materials and intermediate goods concentrated in a single market, and promote exports with high intellectual and domestic value-added content, which will enhance the economy’s resilience to external shocks.”

On digitalization, economic expert Nguyen Minh Phong emphasized: “Businesses must quickly increase localization rates, improve supply chain management, and digitize documentation to withstand increasingly tight technical and trade barriers.” The application of QR and blockchain technologies to ensure product traceability, along with leveraging e-commerce platforms such as Amazon and Wayfair, and participating in trade shows in New York, Los Angeles, and Chicago, will help businesses tap into niche segments like organic goods and high-end furniture. The government is also providing strong support through VAT deferral policies, stable interest rates, and improved logistics infrastructure.

United Overseas Bank (UOB)’s July 2025 report forecasts a 5% increase in Vietnam’s exports to the U.S., driven by a tariff reduction from 46% to 20% on key items such as electronics, apparel, wooden products, and processed agricultural goods. However, UOB noted that this growth is not yet a breakthrough due to weak U.S. consumer demand and ongoing policy uncertainty. Rising competition from Bangladesh and India, along with the U.S.’s “nearshoring” strategy favoring Mexico, presents major challenges. Vietnamese businesses must continuously innovate to maintain their competitive edge.

Source: VCCI