How Is Vietnam Navigating the New Trade War Era?
When U.S. President Donald Trump threatened Vietnam with a 46 percent tariff on April 2 – 'Liberation Day' – he exposed a fundamental contradiction at the heart of the Southeast Asian country's economic miracle. For years, Vietnam had perfected the art of being indispensable to both the United States and China – a nimble intermediary that helped both superpowers circumvent their own destructive trade war. Since 2017, its exports to the U.S. had nearly tripled, transforming it into a manufacturing powerhouse that seemed immune to geopolitical disruption.
But as a Vietnamese proverb warns: When buffalo and oxen lock horns, mosquitoes suffer.
As Trump doubles down on decoupling from China, 'connector economies' like Vietnam are caught in the crossfire. With a ballooning trade surplus with the United States – third only to China and Mexico in 2024 – Vietnam has drawn accusations of acting as a transshipment hub for Chinese goods. Trump's senior counselor, Peter Navarro, went so far as to call the country 'a colony of communist China.'
Although the initial tariff was eventually suspended, the threat rattled Vietnam's economy. Its Purchasing Managers' Index (PMI) plunged to 45.6 in April – its sharpest contraction since the pandemic. While May and June brought marginal rebounds, the index remained below the critical 50 mark, pointing to continued weakness in export orders.
True to form, Vietnam responded with its trademark agility. Within days of the 'Liberation Day' announcement, To Lam, the general secretary of the Communist Party of Vietnam (CPV) and the country's powerful new leader, was on the phone with Trump offering concessions. A flurry of diplomacy followed: a meeting with Chinese President Xi Jinping, trips to Moscow and Central Asia, and trade overtures to France and Thailand.
Hanoi eventually reached a deal with the U.S., yet the compromise – a dual-tariff system of 20 percent on Vietnamese-made goods and 40 percent on those deemed 'transshipped' from China – was just a Band-Aid on a bullet wound.
Vietnam's deeper dilemma is structural. As the United States and China decouple, the room for profitable neutrality narrows. The country can no longer just plug into the highest-return circuit. Economic globalization, which has powered Vietnam's rise, is fracturing. The challenge now is existential: can Vietnam adapt its economic model to this era of geopolitical fragmentation – or will it become collateral damage in someone else's trade war?
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