Vietnam year-end review 2025: Facing new challenges

Tariff Imposition

On April 2, the US announced a 46 per cent tariff rate on Vietnam, the highest on any country. From April 5, all Vietnamese TCF products exported to the US were levied an additional 10 per cent tariff. A week later on April 9, President Trump signed an executive order suspending all country-specific reciprocal tariffs for a period of 90 days, but applied the 10 per cent minimum baseline tariff. Ahead of the July 8 deadline for a 90-day negotiation period, on July 2, Trump administration announced a 20 per cent tariff, effective from August 7, on several of Vietnam’s exports and a 40 per cent duty on trans-shipments from third countries. As per new policy, goods shipped before 12:01 am on August 7 and cleared by 12:01 am on October 5 (US time) could enjoy the previous tariff rate. In return, Vietnam removed all tariffs on the US goods. Subsequently, on September 5, to be effective from September 8, the US removed polyethylene terephthalate (PET) resin from the list of goods exempted from tariffs, and subjected it to ad-valorem duties (tariffs calculated based on a percentage of the assessed value of an item).

Duties on PET Resin

The PET resin is a key input for beverage bottles, textiles, and packaging. The tariff order extended duties to both virgin and recycled PET (rPET), raising costs for products imported under the Harmonized Tariff Schedule of the United States (HTSUS). PET, previously facing a 6.5 per cent duty, now falls under the country-specific reciprocal tariff. The removal of PET, along with epoxy/phenolic resins, from the exemption list meant exports of bottle-grade resin, polyester fibre precursors, and resin-based adhesives by Vietnam will incur a 20 per cent duty in the US market. Vietnamese plastics manufacturers, who had benefitted from duty-free access, were left to decide whether to absorb the tariff, renegotiate with the US buyers, or seek alternative markets. The move signalled the administration’s willingness to extend tariffs into plastics and packaging.

Penalty on Trans-shipments

The US CBP (Customs and Border Protection) did not update its guidance on trans-shipped goods, allowing the August rules to remain in effect. Goods deemed trans-shipped to evade duties continued to face a 40 per cent ad-valorem penalty. While CBP warned of increased enforcement, it did not publish any detailed criteria for substantial transformation. Businesses, therefore, had to rely on traditional rules of origin and maintain thorough supply-chain documentation. Since tariff on trans-shipments was aimed at China, Beijing indicated to retaliate if Chinese interests were harmed. In case China, Vietnam’s largest trading partner and a key source of inputs, retaliates Vietnam could lose 25 per cent of its US exports in the long term, risking over 2 per cent of its annual GDP. Although trade agreements usually define origin through value-added or transformation criteria, no specific origin thresholds were officially announced in regard to trans-shipment.

Supply Chain Complexities

Vietnam’s production model depends heavily on imported raw materials, especially cotton and yarn from China, which makes up 38 per cent of Vietnamese imports, and India. With no clear product-specific guidelines released by the US side at the time of reporting, companies found it difficult to plan ahead or negotiate contracts with confidence. As a result, a ripple effect across supply chains, influencing global markets became imminent. With manufacturing in Vietnam facing contraction, industries worldwide, which depend on their exports, can face stock shortages or price changes. This was evident when stocks of Nike, Adidas, and Puma dropped sharply after Vietnam was hit with 46 per cent tariffs.

Initial Impact

The April tariff announcement caused the manufacturing Purchasing Managers’ Index (PMI) to post 45.6, a significant decrease of 4.9 points, after signalling growth at 50.5 for the first time in four months. The rate of decline was the fastest and most severe in nearly two years. Vietnam’s manufacturing industry was pushed into contraction, with significant declines in new orders, exports, and production. Backlogs fell markedly due to reduced incoming orders, continuing with depletion rate of previous months. Manufacturers cut jobs for the seventh month in a row. Firms scaled back purchasing, with input buying declining for the second month and recording the sharpest drop since May 2023. Inventories fell at their fastest rate since September 2024, reflecting weaker demand and cautious management amid rising uncertainty.

Despite Vietnam’s involvement with 16 international free trade agreements (FTAs), there is no FTA with the US except the bilateral trade agreement. The tariff increase dampened the price competitiveness of Vietnamese goods heading to the US market, and made them less attractive compared to products from countries with lower tariffs.

Vulnerable Textile Sector

The high US tariff posed multi-layered risks for Vietnam’s textile sector. Taking advantage of 90- day reprieve, many Vietnamese textile producers accelerated production and shipping to meet the US orders before the July 8 deadline though increased tariff also led to cancelled orders, job freezes, and workforce reductions, signalling the scaling back of American buyers in anticipation of higher costs.

Implementation of high tariff was estimated to raise average duties on Vietnamese textile products to around 61 to 62 per cent from the existing 15 to 16 per cent, significantly effecting Vietnamese manufacturers operating with thin margins of around 5 per cent, besides driving up retail prices for inflation-grappled American consumers. Some product categories, such as jackets, already faced tariffs of up to 27 per cent. A hike to 46 per cent meant Vietnamese products becoming uncompetitive, forcing the buyers to reach out the alternatives in South Asia or Central America.

Vietnam’s TCF sector excessively relies on foreign suppliers in China, Hong Kong and South Korea for raw materials such as fabrics and trims. In 2023, the total import value of fabrics was $13.2 billion, which equalled to more than 33 per cent of the total export value. Rightly so, Vietnam’s heavy reliance on only a few export markets (US being the number one) makes it vulnerable to tariff changes and geopolitical shifts.

No Respite from Reduction

Tariff reduced to 20 per cent in the second half of 2025 was indeed a relief from the earlier threat but still a greater burden to the US importers and consumers. The costs continued to stay high for US importers, potentially leading to pass-down costs for suppliers or higher prices for consumers. CNBC estimated even a 10 per cent US tariff on Vietnamese goods raised cost of imported men’s sweaters by approximately 8 per cent. Thin margins left the textiles & apparel sector highly exposed, with the US buyers demanding price concessions, while garments made with Chinese fabrics risked the 40 per cent trans-shipment penalty. New tariffs on PET and epoxy/phenolic resins also raised costs for the US importers and squeezed Vietnamese margins. While the US buyers explored domestic producers, rPET faced a discouraging trade.

Industry Measures

The Vietnamese TCF sector began work towards increasing self-reliance on raw materials, developing ethical production processes, investing in automation and AI, diversifying product ranges, and looking for alternate markets in Asia, Oceania, and the EU. In addition, it increased focus on green manufacturing and sustainable product offerings. Industry associations from both the US and Vietnam deliberated implementing short-term relief measures while laying out policies for the long run. Some expressed commitment to increasing cooperation and support aimed at supply chain transparency and compliance with the US policies. Concurrently, the sector accelerated investment in traceability and diversifying their market portfolio to reduce dependency on any single region and strengthen their global positioning.

Government Support

At the policy level, the government tried encouraging firms to explore new export markets through existing FTAs, such as the EU-Vietnam Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP). The government also encouraged domestic firms to move up the global value chain by transitioning from low-cost outsourced manufacturing towards Original Design Manufacturing (ODM) and Original Brand Manufacturing (OBM). Vietnam is laying foundation for long-term economic resilience through strategic infrastructure investment. To enhance regional trade integration and logistics efficiency, which will directly support the textile industry’s export competitiveness, a flagship initiative of developing the multi-billion-dollar railway linking Hai Phong port—home to 241 Chinese investment projects worth $6 billion, is on the way. Additionally, the Lao Cai–Hanoi–Hai Phong railway, with construction scheduled to commence at the end of 2025, is expected to create a vital transportation corridor for both exports and raw material imports. Once linked to China’s rail network, Vietnamese goods will gain faster and more cost-effective access to Europe via the China-Europe freight train system.

Newer Markets

Vietnam is currently a signatory to 16 Free Trade Agreements (FTAs), with ongoing negotiations expected to bring the total to 20. This extensive FTA network allows Vietnamese goods preferential or zero-tariff access to over 120 global markets. Europe presents a particularly promising market, thanks to the EVFTA and the UK-Vietnam Free Trade Agreement (UKVFTA). In the Middle East too, Vietnamese textile exports are gaining ground particularly in agriculture and textiles. While China and India offer significant strategic value, Canada, from the far west, proactively initiated contact with Vietnamese companies to establish bilateral export cooperation, further diversifying Vietnam’s export portfolio and reducing concentration risk.

Planning for Tomorrow

Vietnamese manufacturers are making substantial investments in advanced technologies to meet higher-quality standards, particularly for the US market. They are persistently renegotiating contract terms with US partners, reconfiguring pricing structures and sharing additional costs incurred from new tariffs. Among other initiatives, businesses are enhancing quality control, improving transparency in certificates of origin (COs), embracing technological innovation, and increasing the use of domestic inputs. Avoidance of a 40 per cent penalty on trans-shipment goods is being achieved by developing domestic supply chains and sourcing from ASEAN members, thereby reducing dependency on Chinese imports.

ALCHEMPro News Desk (SB)