Boost localization rate given US tariff tensions: expert

Vietnam must quickly increase its localization rate to reduce reliance on foreign-invested enterprises (FIEs), which currently account for more than 70% of the country’s export value, said associate professor Dr. Nguyen Huu Huan of the Ho Chi Minh City-based University of Economics.

Speaking at a talk show titled “Tariffs and trade barriers: Enterprise responses” on Friday in HCMC, Huan described the U.S.'s latest announcement granting a 90-day delay in imposing 46% tariffs on Vietnamese imports as a positive development, but one that "demands proactive efforts to make a meaningful impact".

“The U.S. has placed Vietnam in a high-tariff group due to the significant trade deficit. Our objective should be to shift to a lower-tariff group, or at least attain the same tax rate as our competitors in the U.S. market,” he stated.

He emphasized the importance of preparing for both positive and negative outcomes. "This period of uncertainty means businesses are likely to limit new hiring. While the immediate impact of tariffs is still limited, the longer-term effect could slow growth," he added.

Huan explained that although the U.S. trade deficit with Vietnam appears large, the actual net cash flow is relatively small because the bulk of exports stem from processing industries - particularly in electronics, high-tech, and textiles - dominated by FIEs.

"The key issue is increasing the localization rate. Vietnamese enterprises must work in tandem with FIEs to localize production and improve Vietnam’s position in trade negotiations with the U.S.," he said.

“President Donald Trump once said he loves Vietnam - but he also wants results. If we want successful negotiations, we need a clear, measurable roadmap. Businesses must also prepare for the worst-case scenario - where the 46% tariff remains, or at best, is cut in half. A complete removal is unlikely," added Huan.

Nguyen Chanh Phuong, vice chairman of the Handicraft and Wood Industry Association of HCMC (HAWA), said the 90-day delay offers valuable time for the wood industry to adjust. "The wood supply chain can’t shift in just six months or even a year. Vietnamese businesses and their partners must use this time to strategize and adapt to the evolving situation," added Phuong.

He noted that prior to the delay, companies were extremely anxious about U.S. orders and potential disruptions in cash flow.

Tran Hoang Phu Xuan, vice president of the HCMC Textile and Garment Association and CEO of Faslink JSC, echoed those concerns. "When news of the U.S. tariffs broke, business leaders were in constant negotiation with partners- early mornings, late nights. Many of us only sleep a few hours a day. The priority now is maintaining trade continuity through negotiation," said Xuan.

She added that the seasonal nature of the textile and garment industry, along with 18-month production cycles, makes it difficult to respond quickly to sudden changes in tariffs. "We can’t just flip the switch on a long-term business plan because of new taxes. Flexibility is key, but so is early communication with partners," she added.