Vietnam’s Industrial Sector Faces Challenges Amid U.S. Tariffs
Dated: QUANG NINH, Vietnam — Le Ngoc Tram, sales manager at the Amata industrial park in northern Vietnam, aims to attract manufacturers looking to relocate from China. This initiative was intended to capitalize on the fallout from U.S.-China trade tensions, particularly tariffs imposed during the initial trade war. However, the landscape has become increasingly complicated.
Impact of New Tariffs
Three years into the project, less than half of the 1,716-acre industrial park is complete. Many companies that once expressed interest in leasing land are now reconsidering their options in light of President Trump’s recent decision to impose a hefty 46% tariff on imports from Vietnam, which ranks as the eighth-largest trading partner of the United States.
Despite Trump announcing a 90-day delay on the new tariffs and easing some duties on certain electronics, Vietnam remains under pressure. A potential 46% tariff may render Vietnamese goods less competitive in the U.S. market, impacting both manufacturers and buyers who may turn to nations with lower tariffs.
Repercussions for Manufacturers
“In the short term, that will be a hit to manufacturers,” said Tram, who works for Thailand-based Amata Corp. She noted that while construction continues at factories already under development, numerous companies that were close to making investment decisions are now putting those plans on hold. This includes about 40 firms, with roughly one-fifth nearing finalized investments.
The shift in trade dynamics has historically favored Vietnam; the 2018 tariffs on China spurred many companies to seek production alternatives within the country. The influx of high-tech manufacturers like Apple suppliers Pegatron and Foxconn has contributed to Vietnam’s robust industrial growth, evidenced by a 35% surge in exports to the U.S. in 2019 alone.
Manufacturing’s Role in Economic Growth
Manufacturing now constitutes more than 20% of Vietnam’s GDP, serving as a pivotal driver toward achieving the government’s ambitious goal of an 8% growth rate by 2025. However, Trump’s protectionist trade policies threaten to undermine this growth trajectory.
Government Responses and Strategies
Following the announcement of the tariffs, Vietnamese leaders, including Minister To Lam, have reached out to propose mutually beneficial tariffs, emphasizing a reduction in their own tariffs on American imports in exchange for U.S. concessions. “If it really gets implemented like this, the impact is dramatic for the economy,” cautioned Matthieu Francois, a partner at Delta West, an advisory firm operating in Vietnam.
As discussions surrounding trade relations persist, Tram and her clients remain on alert. The infrastructure at Amata park is still being developed, with significant exports directed to the U.S. “We are still monitoring the situation and observing the next stage,” Tram remarked, expressing determination to navigate the rolling challenges brought by the tariffs.
Long-term Implications and Adaptations
Despite the uncertainty, Vietnam is assessing ways to counteract the prospective impacts of the tariffs. Strategies may include reducing corporate tax rates or enhancing incentives for firms establishing operations in Vietnam.
China’s response to the tariffs has been severe, imposing a 125% increase on certain American imports. In contrast, Vietnam has opted for a more conciliatory approach to foster relations, increasing imports of U.S. goods such as liquefied natural gas and facilitating foreign investments in infrastructure projects, including a golf resort supported by the Trump Organization.
Looking Ahead
The landscape of Vietnam’s manufacturing and foreign direct investment is evolving. The potential slowdown in new investments could alleviate some labor market pressures while encouraging enhancements in productivity. With historical ties to both the U.S. and China, Vietnam aims for a pragmatic balance to emerge as a favorable destination in global manufacturing amid ongoing trade uncertainties.
As market conditions shift, industry leaders like Bruno Jaspaert underscore the need for Vietnam to align economic growth with foreign investment, suggesting that Vietnam’s ability to appease both major powers could help it weather the storm of these chaotic trade times effectively.