Portugal Colonial - 'Shocking': US tariffs worse than feared for Vietnamese exporters

A manufacturing powerhouse that counted the United States as its biggest market last year, the Southeast Asian nation was hammered with a thumping 46 percent tariff in President Donald Trump's global trade blitz.

Despite widespread fears it could be a key target over its huge trade surplus with Washington -- the third-largest after China and Mexico -- the size of the levies came as a bombshell for businesses and factory workers on Thursday.

"It's truly shocking," said Tran Nhu Tung, board chair at Thanh Cong, a factory in Ho Chi Minh City that makes clothes for DKNY and Walmart, among others.

"Especially in the textile industry, we did not anticipate (this). I thought that since Vietnam is a smaller country, the US would not impose such (high) tariffs," said Tung.

About 25 percent of his exports currently go to the United States, he added.

During the trade war between Beijing and Washington in Trump's first term, Vietnam took advantage of its geographic location and cheap skilled labour to position itself as an alternative manufacturing hub in Asia.

Many companies shifted parts of their supply chain, and Vietnam's trade surplus with the United States doubled between 2017 and 2023.

Now, big brands such as Nike -- which produced 50 percent of its footwear and 28 percent of its apparel in Vietnam in the 2024 financial year -- face vastly higher costs, which they will have to absorb or pass on to customers, and their shares dropped sharply Thursday.

The tariffs could force many to look elsewhere for manufacturing, analysts said.

"These products are low margin and price sensitive, prompting major companies to switch orders to countries with lower reciprocal tariffs," said Sayaka Shiba, senior country risk analyst at research firm BMI.

The tariffs would "significantly damage" Vietnam's current export-based growth model, which heavily relies on exports to the United States, she said, adding in the worst-case scenario there could be a three percent hit to GDP this year.

According to data from the US Trade Representative website, the United States imported $136.6 billion worth of goods from Vietnam last year, representing nearly 30 percent of its GDP.

In the wake of the announcement, Hanoi shares tumbled, with its main index closing down 6.7 percent on Thursday, its biggest drop since 2001 according to Bloomberg.

- 'Can't eat, can't sleep' -

The tariffs have left workers in Vietnam fearing for their futures.

"I can't eat or sleep well because I keep worrying about losing my job," said 38-year-old Cao Thi Dieu, a worker at a factory in Ho Chi Minh City that makes shoes for brands such as Nike and Adidas.

"How will I manage if I lose my job? How will I continue earning money each month to take care of my two children's education?" she told AFP.

Hours after the announcement, Vietnam's prime minister requested the immediate establishment of a "rapid response team" and said Deputy Prime Minister Ho Duc Phoc would head to the United States for a "working visit".

"Many here believe (the tariff figure) is more of a negotiation tool than a final position," said Dan Martin of business advisory firm Dezan Shira & Associates in Hanoi.

Although Vietnam may hope that it can clinch a reduction, previous charm offensives have not worked.

Earlier this week, Vietnam cut import duties on a wide range of goods from liquefied gas and some agricultural products to cars in what appeared to be a pre-emptive attempt to blunt the tariffs.

It also announced that it would allow Elon Musk's SpaceX to launch its Starlink satellite internet service in a pilot programme running to 2030.

But it appears the Trump administration was too angered by what it sees as Vietnam's role in attempts to get around tariffs imposed on China.

"The way the game works with Vietnam...." a White House official told reporters, "they'll set up these facilities, which look like from the air that they're manufacturing facilities, but all China does is ship in Chinese products into these warehouses and off they (Vietnam) send it to us."

But a 2024 report by the International Monetary Fund said there was "no clear evidence" of Vietnam's role in facilitating Chinese exports to the United States.

"Most manufacturers are not here to game the system," said Martin. "They're here because Vietnam makes strategic and operational sense."

O.Gaspar--PC