Vietnam's Trade Strategy in a More Protectionist Era
By Mai Nguyen
Dr Nhat-Mai Nguyen (Mai Nguyen), Deputy Director of the Hub for Vietnam Policy Studies at the Australian National University responds to the Trump-Tariff World. She highlights that balancing supply chains and markets is key to resilience in a much more protectionist era.
Few trading relationships are as asymmetrical — and as strategically significant — as that between Vietnam and the United States (US). Over the past decade, the United States has become Vietnam’s single most important export market, accounting for 30 per cent of total exports in 2024. Bilateral trade reached US$135 billion last year, with Vietnam recording an unprecedented US$105 billion trade surplus. Exports to the US now represent nearly 30 per cent of Vietnam’s Gross Domestic Product (GDP), leaving the economy acutely vulnerable to shifts in US trade policy. The Trump-Tariff World underscores the risks of such dependence.
Following negotiations after ‘Liberation Day’, the US imposed a 20 per cent tariff on general goods from Vietnam and a 40 per cent tariff on what it terms ‘transhipped’ products. The lower rate mirrors tariffs applied to other ASEAN economies and is far less severe than the 46 per cent proposed in April. But the 40 per cent tariff — coupled with the absence of clear criteria for defining ‘transshipment’ — poses damaging uncertainty for Vietnam’s export prospects.
Vietnam’s reliance on both US demand and Chinese supply chains amplifies its risks. It imports nearly 40 per cent of its inputs from China, which are then assembled into goods destined for the US market. Since the escalation of US–China trade tensions in 2018, Vietnam has attracted growing foreign direct investment into manufacturing and processing industries geared toward the US market. This integration has reinforced Vietnam’s role as a processing hub, leaving it squeezed between Chinese suppliers and American consumers.
The projected economic fallout from these tariffs is substantial. Computable General Equilibrium modelling by Nguyen and Chu (2025) estimates that under a 20 per cent tariff, Vietnam’s exports could decline by 1 per cent in 2025, GDP could contract by up to 2 per cent, and job losses could exceed 1 per cent. If the 40 per cent tariff were applied broadly, exports could fall by as much as 5.5 per cent, GDP could shrink by nearly 6 per cent and employment losses could reach 6.5 per cent.
Regulatory tightening in the US compounds the risks beyond tariff rates. The US is linking market access to stricter rules on origin, labour standards, Environmental, Social and Governance (ESG) compliance and digital trade provisions. The ambiguous definition of ‘transshipment’ — commonly understood as the rerouting of Chinese-made goods through Vietnam — raises the risk of investigations and reputational damage.
By avoiding the steepest tariffs, Vietnam appears to have agreed to reduce tariffs on US exports, which lowers costs for Vietnamese consumers and businesses. Trade diversion, as global firms shift production from China to Vietnam, may reinforce the attractiveness of Vietnam as a production hub in the region. Nevertheless, in terms of its trade Vietnam’s remains structural dependent on both the US and China.
Diversifying both export markets and import sources is an important step towards reducing trade vulnerability. In particular, expanding trade with Australia, the European Union, ASEAN partners, the Middle East and emerging African markets would spread risks and open new avenues for growth. Deepening strategic partnerships with countries where complementarities support sustainable development — while fully exploiting existing free trade agreements — should be central to Vietnam’s next phase of integration.
Raising domestic value-added in exports is another path forward. Strengthening local supply chains, developing upstream industries, upgrading logistics, and adopting advanced technologies would help reduce reliance on imported inputs. Non-tariff barriers — such as quality standards, technical requirements and compliance regimes — are increasingly being applied, and not just in the US market but in other potential export destinations. Thus, for Vietnamese firms, improving product quality should be a long-term priority. Further, aligning domestic regulations with international standards will not only meet compliance demands from major markets but increase Vietnam’s standing as a trusted trade partner.
Vietnam, like many other countries, needs to prepare for a growing ‘Green Trade’ agenda. For example, mechanisms such as the European Union’s Carbon Border Adjustment will increasingly shape global trade flows. Vietnam should therefore invest in renewable energy for export industries, promote circular economy models and embed its firms within green value chains. Without these initiatives, Vietnamese exports may lose competitiveness in markets where climate and environmental standards are becoming more stringent.
Another strategy for Vietnam is institutional reform. A more coordinated approach to trade policy — linking government agencies, industry and research institutions — should strengthen the country’s capacity to anticipate global shifts and respond effectively. Expanding the analytical and enforcement capabilities of customs, standards bodies and trade promotion agencies will also help navigate an increasingly fragmented and protectionist environment.
The US will remain central to Vietnam’s trade strategy for the foreseeable future, but overreliance on a single partner is ‘risky business’. The volatility of US trade policy means Vietnam must hedge its exposure by cultivating a more balanced portfolio of trading partners and building stronger domestic capabilities. Vietnam has an opportunity to diversify its markets, strengthen domestic industries and align with the green and digital standards shaping the next phase of global commerce. It should seize this opportunity to build on its remarkable economic achievements and position itself for sustainable and resilient long-term growth.