Previously a war-torn nation, Vietnam is now a world manufacturing hub and one of America’s leading exporters in the top ten. However, today Vietnam is facing a new challenge—how to sustain export dominance in the face of the escalating tension between the United States and China.
At the center of the controversy is former US President Donald Trump’s plan for a 46% tariff on Vietnamese imports. The Trump administration believes Vietnam is being used as a transit hub for Chinese products, enabling companies to circumvent tariffs on Chinese goods. Though there is legitimate supply-chain adjustment in some rerouting, US authorities are calling on Hanoi to prove that Vietnamese exports are Vietnamese in origin.
Tariff Clock Ticking as Deadline Approaches
Vietnamese authorities have been aggressively negotiating to avoid the dramatic tariff from being implemented. The grace period of 90 days expires early in July, triggering a fierce debate in Washington this month. Negotiations center on responding to US worries regarding trade deception and misleading labels on Chinese products.
This pressure highlights Vietnam’s economic reliance on China for raw materials and parts. Firms such as Shein and Alibaba have increased their presence in southern Vietnam’s industrial parks, where they ship-ready products to the US. As factories grow and take on more labor, questions rise regarding product authenticity of origins.
China is Vietnam’s largest supplier of intermediate goods,” the New York Times quoted Priyanka Kishore, the founder of Asia Decoded, a Singapore consultancy, as saying. “If exports to the US are increasing, it stands to reason that imports from China are increasing too.”
Vietnam Struggles to Reassure the US
Vietnam has in turn established a special task force to crack down on smuggling and false labeling. The Finance Ministry has also collaborated with US Customs and Border Protection to strengthen inspection activities. US trade officials are, however, not convinced.
One of Trump’s main trade advisors, Peter Navarro, has characterized Vietnam as “a colony of China,” a comment that has shaken Vietnamese leaders. To try to defuse tensions, Hanoi offered to import more US products, from Boeing planes to agricultural produce. A new Trump-branded resort development under construction in Vietnam, spearheaded by Eric Trump, indicates attempts at keeping the economic relationship amiable.
Vietnam’s Growth Model Under Strain
In spite of its export success, Vietnam’s growth strategy is under strain. Vietnam is dependent on foreign investment and low-cost labor, both of which now come with constraints. Increasing wages, demographic changes, and environmental degradation are long-term threats.
Vietnam’s apparel and electronics sector are particularly exposed. “Without China, we cannot produce products. And without the US, we cannot sell the finished products,” said Tran Nhu Tung of the Vietnam Textile and Apparel Association.
Of textile materials, around 60% are supplied by China, so Vietnam finds it hard to curtail its reliance while satisfying Western demand.
To Lam’s Reforms Face Political Resistance
Shepherding Vietnam through this challenging period is To Lam, the new Communist Party leader and once-security officer. He has launched sweeping bureaucratic reforms, eliminated 100,000 state jobs, and vowed a new “era of national rise” and ambitious economic goals, such as double-digit growth by 2030 and $100 billion in chip exports by 2050.
But The Economist says Lam’s true challenge is transforming Vietnam’s sclerotic economic system—still controlled by wasteful state-owned enterprises and crony business groups. To maintain the momentum, analysts say, Vietnam needs to streamline business licensing, boost credit for SMEs, and gradually reduce Chinese dependence without jeopardizing bilateral relations.
But all these reforms will generate political tension among the entrenched elite, so reform is a perilous task.
Vietnam’s balancing act between China and the US has never been so precarious. While it tries to reassure Washington of its trade sincerity while relying on supplies from China, the gamble is great. If To Lam’s ambitious vision can shake off structural imperfections as well as geopolitical headwinds, Vietnam’s economic fate in the coming decades will be determined.
