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[HO CHI MINH CITY] Vietnam’s dream of becoming a foreign direct investment (FDI) darling is at risk of unravelling, with the US having slapped a 46 per cent reciprocal levy on the country. It is the steepest among the Asean-6 countries and a move that narrows the South-east Asian country’s cost advantage over China.

Caught between escalating US trade pressure and rising regional competition, Hanoi has just days – until Apr 9, to be exact – to negotiate a reprieve on the tariff that it deems “unfair” and not reflective of its ongoing goodwill in addressing the trade imbalance.

If Vietnam fails to win concessions, it could lose its edge as the go-to China+1 destination, threatening to derail years of supply chain gains and its status as South-east Asia’s FDI hotspot.

“Multinational corporations may pause or postpone their FDI in Vietnam, given the uncertainty and higher US tariffs,” Brian Lee, economist at Maybank Investment Banking Group, told The Business Times. 

Though investment uncertainty is likely to be widespread across Asean as a whole, the stakes are higher for Vietnam. 

For one, firms exporting to the US from Vietnam would bear significantly steeper tariffs than peers in Asean-6, including Singapore (10 per cent), the Philippines (17 per cent), Malaysia (24 per cent), Indonesia (32 per cent) and Thailand (36 per cent).

Craig Martin, chairman at Guernsey-based fund manager Dynam Capital, wrote in a commentary: “A business that’s considering establishing a factory in Asia is likely to take this into consideration.”

The impact extends beyond Vietnamese exporters. US giants such as Apple, Dell, Adidas and Nike, which outsource production in Vietnam, are now caught in the crosshairs of US President Donald Trump’s tariff backlash.

Vietnam emerged as one of the biggest beneficiaries of the Sino-US trade tensions during the Trump’s first term.

From 2018 to 2024, Hanoi’s trade surplus with Washington tripled to US$123.5 billion, the third-highest after China and Mexico, with its market share in US imports nearly doubling.

Wooden products, textiles, footwear and electronics are among Vietnam’s main export categories to the US.

Buoyed by more than just tariff advantages, Vietnam has risen as a regional manufacturing powerhouse, drawing a surge of FDI, particularly from China.

But that success has also drawn scrutiny, with Hanoi increasingly viewed as a key hub for Chinese firms to rebrand and reroute exports to sidestep US trade restrictions.

Given that Washington will impose a 34 per cent reciprocal tariff on Chinese goods, the weighted average US tariff gap between China and Vietnam has now shrunk to about 15 percentage points, compared to an estimated 27 percentage points previously, Maybank’s Lee pointed out. 

“The tariff discrepancy between the two economies will soon narrow, thereby reducing Vietnam’s attractiveness for supply chain diversification,” Helmi Arman, Citi’s chief economist for Vietnam, wrote in a note. 

Dynam Capital’s Martin said higher-value sectors are more vulnerable to the tariffs than low-value industries such as textiles and footwear – sectors for which Vietnam, along with its rivals such as Cambodia and Bangladesh, already face similarly steep US duties.

Target versus reality

With exports making up 85 per cent of its gross domestic product in 2024, Vietnam’s economy is deeply trade-dependent, driven in large part by the US, its biggest export market, which absorbs around 30 per cent of total shipments.

That makes even Trump’s 10 per cent baseline tariff, set to take effect on Apr 5, a serious threat. The levy is expected to dent US demand, dragging down Vietnam’s export momentum and short-term growth outlook.

Most analysts expect Vietnam’s GDP growth to take a hit this year, with projections lowered by half to 1 percentage point from earlier forecasts.

However, Hanoi is standing firm with its target of at least 8 per cent GDP growth for 2025, Prime Minister Pham Minh Chinh said at a meeting on Thursday (Apr 3).

Amid the uncertainty, Deputy Prime Minister Ho Duc Phoc is set to visit the US on Sunday. He will be acommpanied by executives from companies including Vietnam Airlines and Vietjet Aviation.

This move is seen as Vietnam’s last-ditch effort to remedy non-reciprocal trade arrangements and to better align with the US – factors cited by the White House as the basis for a modification of the tariff hike.

Vietnam, which Trump described as a “great negotiator”, has also been pushing for frenzied dealmaking worth a total of US$90.3 billion with US firms, at least US$4.2 billion of which has been sealed. 

The strongest move so far was Vietnam’s tariff cuts on selected US imports, including liquefied natural gas, cars and various agricultural products.

“We think that ultimately, the US-Vietnam trade imbalance is likely to remain large,” said Francoise Huang, senior economist for Asia-Pacific at Allianz Trade, pointing to the existing insignificant volume of products that Vietnam sourced from the US. 

Maybank’s Lee echoed the viewpoint as he questioned whether Vietnam’s trade concessions would be sufficient to persuade Trump to lower the reciprocal tariff.

He said it would be difficult to meaningfully reduce Vietnam’s trade surplus since its purchasing power was lower than that of the US: “Vietnam will have to find new growth opportunities from the region and non-US markets.”