On the first day of February, US President Donald Trump signed an order imposing tariffs on all imported goods from the US’ three largest trading partners: China, Canada, and Mexico. While a 25 per cent tariff on goods from Mexico and Canada was paused for a month after discussions with their leaders, a 10 per cent tariff on Chinese goods took effect from February 4.

China responded by imposing tariffs on US imports, including 15 per cent on coal and natural gas, and 10 per cent on petroleum, farm equipment, high-emission vehicles and pickup trucks. China has also threatened to take the United States to the World Trade Organization, and denied fentanyl-manufacturing allegations.

It has also alerted some companies, including US tech giant Google, about upcoming sanctions, and launched an antitrust investigation into the tech giant.

Discussing whether Vietnam can avoid the negative effects of the US tariff policy, Pham Quang Vinh, former Deputy Minister of Foreign Affairs and former Vietnamese Ambassador to the US, said, “There is no issue in relations with the US in terms of the economy, trade, or technology.”

Last week, at the regular governmental meeting, Prime Minister Pham Minh Chinh raised the alarm that a global trade conflict may soon break out.

“The world and regional situation is evolving unpredictably, directly affecting our country, especially exports, production, business, and the macroeconomy,” the PM said. “We need to closely analyse the situation, especially emerging issues, such as the possibility of a global trade war. If it happens, it will disrupt supply chains and narrow export markets. So we need solutions to respond quickly and promptly, not miss any opportunities, and maintain momentum for development.”

Possible ramifications

Tran Thanh Hai, deputy director general of the Agency of Foreign Trade under the Ministry of Industry and Trade, said, “The US increase in tariffs on a large amount of valuable goods is the beginning of a trade war. In addition to the direct impact on the three countries mentioned, other international trade is also affected.”

Hai said that the actions of the US reflected a unilateral trade policy, against the trend of trade liberalisation, a mainstream trend the US initiated.

Canada, Mexico, and China export a wide range of products to the US, including electrical equipment, machinery, household appliances, textiles, footwear, sports equipment, and agricultural products. Therefore, supply chains related to these products will be affected by the way goods are produced and transported around the world.

“As the US market becomes more challenging and expensive for Chinese exporters, China may shift excess capacity to Southeast Asian markets, negatively affecting manufacturers in countries like Indonesia, Malaysia, and Thailand,” said Steven Okun, CEO of APAC Advisors.

Okun said that a large-scale trade conflict may break out due to numerous strong reactions from countries affected by the new tariff policy of the US administration. Moreover, it could lead to higher tariffs on re-exported goods.

“With the increased import tax policy, consumer demand from the US may decrease in the long term due to the high cost of imported goods, leading to a decline in Vietnam’s exports. With 30 per cent of the total export value to the US market, Vietnam’s GDP will be deeply affected, in addition to the case of cheap goods from other countries finding new markets, putting competitive pressure on Vietnam’s domestic goods and industries,” he added.

Such new developments require Vietnamese enterprises to closely monitor them to anticipate negative impacts, especially the impact on the supply chain. Its dependence on trade makes Vietnam vulnerable to external risks, Okun said.

Domestic exporters’ efforts

Former Ambassador Pham Quang Vinh suggested that the Vietnamese government should ensure trade fairness, including transparency in the origin of goods, as well as actively expanding and facilitating the investment environment for foreign enterprises, including US enterprises in Vietnam.

“We should establish dialogue mechanisms to promptly resolve concerns from both sides, and deepen and encourage the comprehensive strategic partnership between the two countries,” Vinh said.

“There will be numerous difficulties with the US move. However, Vietnam has chances to take advantage of external forces to create new breakthroughs. The country needs to create a favourable environment in terms of policies, infrastructure, and workers,” he added.

For local businesses, the prime minister suggested solutions such as continuing to expand, and diversify markets, products, and supply chains, especially in markets such as the Middle East and South America.

Diep Thanh Kiet, vice chairman of the Vietnam Leather, Footwear, and Handbag Association, advised small and medium-sized enterprises to choose markets with fewer risks and more stability, such as the EU, Japan, and even the ASEAN market.

He said the goal of the new US administration going forward was to reduce the trade deficit as much as possible under the guise of fair trade.

“In the footwear industry, instead of importing raw materials from other countries, businesses should gradually move to import from the US,” Kiet said.

“On the other hand, controlling exports to the US in a substantial way is also essential. Especially, it is necessary to control the transferring production, which means, importing pre-processed products or even nearly finished products abroad to Vietnam to conduct steps with very low value such as packaging, labelling, and exporting.”

Vietnam had been raising imports of goods from the US in recent years. Last year, Boeing and Vietnam Airlines signed an MoU to purchase 50 Boeing 737 MAX narrow-body aircraft, worth $10 billion. The US also exported $3.1 billion of agricultural products to Vietnam, and FPT invested $200 million in cooperation with Nvidia to build an AI factory.

Economist Ha Thi Cam Van has proposed to diversify markets and supply chains, and mitigate dependence on the US by expanding exports to the EU, Japan, and ASEAN, and increasing localisation of production to improve economic autonomy.

“To create a safe supply chain, Vietnamese enterprises should speed up diversifying import and export markets. In particular, deals such as the EU-Vietnam Free Trade Agreement and Regional Comprehensive Economic Partnership will ensure the export volumes of Vietnamese goods, minimising the impact and fluctuations in trade if a trade war breaks out,” Van said.

Source: Vietnam Investment Review