Trump tariff uncertainty distanced Vietnam from China. It didn’t last

Neighbours in South-east Asia are getting tariffs of about 20% 

In Vietnam’s northern manufacturing belt, tariff angst is not stopping the flow of  Chinese money. If anything, it’s growing.

From a Chinese circuit board maker’s eager calls for workers, to construction crews rushing to finish a new plant for a Shenzhen producer of gaming parts, the electronics hub of Bac Ninh province, just east of Hanoi is buzzing with Chinese activity. So much so that provincial officials expect to rubber-stamp US$1 billion in new investment licenses, many of them Chinese.

These optics may seem unusual amid a geopolitical trade spat. Just months ago, the rhetoric from hawks in US President Donald Trump’s administration had been clear: global producers such as Vietnam must rely less on China’s supply chain or risk even higher American tariffs.  Trump’s trade adviser Peter Navarro took to Fox News in April and described Vietnam as “essentially a colony of communist China”.

But the reality has painted a different picture for Vietnam. Trump announced in early July that he’d reached a deal with Hanoi, setting tariffs at 20 per cent for goods made in Vietnam and 40 per cent for products suspected of being rerouted or “transshipped” in trade speak, from countries such as China. Neighbours in South-east Asia are getting tariffs of about 20 per cent while China faces a duty of about 55 per cent, leaving Vietnam relatively secure.

“Vietnam is still in a relatively favourable position,” said Bloomberg Intelligence analyst Steven Tseng. “While its 20 per cent tariff is not the lowest, it does not necessarily hurt competitiveness given Vietnam’s cost advantage, established industrial base and geographical proximity to China. It still makes sense for Chinese manufacturers to shift to Vietnam.”

My Trinh, a manager at KCN Vietnam, which builds ready-to-use factories and warehouses for global suppliers, said that the first phase of her company’s latest industrial developments sold out fast. Most of the dozen factory shells will bear the logos of Chinese firms, including Shenzhen MYGT, which makes game controllers for Microsoft and Nintendo, and Dongguan Rayking Electronics, a maker of electroacoustic circuit boards.

“They are still accelerating without any hesitation,” Trinh said in an interview at a Bac Ninh industrial park earlier this month.

It’s a welcome respite for the South-east Asian nation. In April, Trump had stood in the Rose Garden and unveiled his laundry list of levies aimed at countries he accused of unfair trade. Among them, Vietnam was hit with a punishing 46 per cent tariff, one of the highest among about 90 countries. The country, normally adept at straddling East and West, initially saw orders from US customers fall. Fears the tariff could devastate large swathes of the economy spread fast, and officials quickly dispatched several delegations to Washington.

To Vietnam’s relief, the pause in orders turned out to be brief. Its US trade agreement has meant Vietnam is no worse off than rival nations.

A major sticking point remains what the White House counts as a transshipped product, something the Trump administration is expected to detail soon. But despite the uncertainty, Vietnam’s growing role in the global supply chain has meant that foreign investments are increasing, said Nguyen Duc Long, a Bac Ninh provincial official. Long expects US$1 billion in investments in the province on top of US$4 billion in foreign money already pledged in the first half of this year.

“Companies in our industrial parks are still operating normally,” Long said with casual calm while sipping green tea. “Goods are coming in and going out.”

Vietnamese officials have cause to be cautiously optimistic. China remains the country’s largest trading partner by a wide margin. Investments pledged by those from China and Hong Kong in the first half of this year jumped 23 per cent on the year to US$3.6 billion, according to Vietnamese government data. In the second quarter, after Trump announced his tariffs, they increased 24 per cent from a year ago.

But officials in Hanoi also acknowledged that the tariffs could hit its US exports hard and the tech industry is especially vulnerable. Shipments to America may decline by as much as a third and tech exports could drop by about US$15 billion, according to an internal government assessment dated Jul 11, Bloomberg News reported. Vietnamese officials have said negotiations with the US are ongoing.

Manufacturers may be hit by another curveball: Beijing, not happy that suppliers are expanding beyond its borders, is making it harder for experts and high-tech manufacturing equipment to go abroad.

“Vietnam remains a very attractive investment destination,” said Daniel Kritenbrink, who was US ambassador to Vietnam from 2017 to 2021 and is now a partner with The Asia Group consultancy. “But I don’t know that I’ve seen any massive new projects either. We have to see where these trade negotiations land.”

Staying power

Vietnam has come a long way from its agrarian past. The Communist government has signed more than a dozen trade deals and is aggressively seeking more pacts in new regions, boosting the country’s appeal to suppliers who ship products across the globe from the South-east Asian nation.

Labour is cheap, the workforce young and tech-literate. The politics are stable. Logistics are set to get smoother as the government plans billion-dollar infrastructure projects. Rival nations are locking in tariff rates close to that of Vietnam. The Philippines and Indonesia negotiated trade deals with tariffs of 19 per cent each, just a percentage point below Vietnam’s, signalling that much of South-east Asia could get a similar rate.

Apple CEO Tim Cook in May said that Vietnam will produce “almost all” of its iPads, MacBooks, watches and AirPods for the American market.

BW Industrial, a logistics and industrial property developer that is a joint venture between Warburg Pincus and Becamex IDC, said that it had leased more than 84 per cent of its planned space for the year within the first five months of 2025.

“It’s not just Chinese companies,” said Jeffrey Perlman, chief executive officer of Warburg Pincus, which has invested about US$2 billion in eight Vietnamese companies. “Most companies, whether American, Korean, Japanese, or others, are moving here regardless.”

China factor

That momentum, however, runs on Chinese parts.

Vietnam imported nearly US$85 billion worth of goods from China in the first half of this year alone, a 26 per cent jump year-over-year and nearly 40 per cent of total imports. Those goods include electronic components, fabric, machine parts – the kind of electronic guts that power everything from PCs to drones.

“The inputs Vietnam needs for its top exports, phones and textiles, are dependent on China,” said Trinh Nguyen, a senior economist at Natixis.

The irony is that the country’s trade gap with the US, the third-largest behind China and Mexico last year, accelerated because of Trump’s first-term trade war with China, which drove more manufacturers to Vietnam. Now, as the nation becomes more entrenched as part of the global supply chain, it finds itself relying more on Chinese parts than ever before. Much of what’s “Made in Vietnam” is made possible by China.

Trump had tried to decouple countries such as Vietnam from China, as evidenced by the steep 40 per cent tariff on transshipped goods, but those efforts “will remain ineffective, as China continues to be a major supplier of a wide range of components”, Bloomberg Intelligence’s Tseng said.  

At a recent electronics expo in Bac Ninh, Chinese executives fanned out across exhibition halls. The consensus: Vietnam’s attraction will outlast the Trump administration.

“There are so many business opportunities in Vietnam,” said Huang Jun Han, CEO of Guangdong Chau Light Infrared Semiconductor, which manufactures components for products ranging from Bluetooth earbuds to automobile sensors.

Factory renter KCN Vietnam knows this well. It has 11 industrial sites in the country and plans to more than double that number by 2028.

Customers “are really pushing us” to get factories ready as soon as possible, said KCN chief operations officer Hardy Diec. “The majority are signing five-plus year contracts. They are here to invest for the longer term.”

Bloomberg Agency – July 30, 2025