US tariff unlikely to dent Vietnam’s long-term FDI appeal: broker

The U.S. tariff gap between Vietnamese goods and those from four other Southeast Asian countries would not erode Vietnam’s competitive edge in manufacturing and investment, said Hanoi-based Vietcombank Securities (VCBS).

Under a new executive order signed by President Donald Trump on July 31 that imposes reciprocal tariffs on imports from 69 countries and territories, Vietnam faces a 20% levy - well below the rates for Asian economies such as Laos (40%), Myanmar (40%), Brunei (25%), and India (25%).

Vietnam’s tariff is slightly higher than that of some regional peers - Cambodia, Indonesia, Malaysia, the Philippines, and Thailand (all 19%).

In terms of export costs, this gap has little impact, VCBS experts said in a recent report, adding that Vietnam still holds clear advantages over other countries in both manufacturing and investment.

In addition to its coastal location and strategic ports, Vietnam’s production costs remain competitive thanks to relatively modest industrial land rents and some of the lowest electricity prices in the region. Labor costs are also comparatively low.

A key strength is Vietnam’s favorable investment climate, underpinned by political stability, investor incentives, and a wide network of free trade agreements, they noted.

VCBS expected the country to maintain its edge as an ideal destination for investment and manufacturing, strengthening its position in the global supply chains, with FDI inflows likely to keep favoring Vietnam over the long term.

Transshipment risk through Vietnam

The experts said the tariff gap between Vietnam and other countries suggests the U.S. still sees a risk of goods being transshipped through Vietnam.

According to the U.S. executive order, “an article determined to have been transshipped to evade applicable duties shall be subject to an additional ad valorem rate of duty of 40%, in lieu of the additional ad valorem rate of duty applicable to goods of the country of origin.”

With Vietnam’s exports to the U.S. exceeding $100 billion annually, tariff decisions will have far-reaching implications for trade and manufacturing in the Southeast Asian nation, the broker commented.

VCBS said the U.S. has yet to set a specific standard or definition for “transshipment,” typically focusing instead on a domestic value-added threshold of around 35% and the criterion of “substantial transformation” during production.

It noted that agriculture has achieved a localization rate of about 65%, leaving the sector largely insulated from tariff risks, while electronics such as computers and phones are exempt from reciprocal tariffs.

Machinery and equipment, with a localization rate of just 30% - below the 35% threshold in most U.S. FTAs - faces the highest risk from reciprocal tariffs on transshipped goods, VCBS analysts said.

Sectors with mid-range localization rates - transport (43%), metals (41%) and textiles (45%) - should also be watched, as tighter transshipment rules could put them under pressure, the analysts noted.

If the U.S. raises the localization threshold, both exports and FDI could take a short-term hit, they believed.

In the longer run, however, this pressure may push foreign manufacturers to shift more value-added production to Vietnam, thereby lifting product localization rates.

Domestic firms should also ensure greater transparency in supply chains and increase the value-added content of their products, the analysts recommended.

Citing experiences from other countries, they noted that the initial agreement with the U.S. still leaves room for further negotiations, allowing for greater flexibility in future adjustments.

“We believe that Vietnam's proven diplomatic agility may lead to even more favorable outcomes ahead,” according to the report.

In the context of global trade tensions, Vietnam continues to demonstrate the resilience of its macroeconomic foundation and its strong growth potential, it emphasized.

“Accordingly, Vietnam is well-positioned to emerge as an attractive destination for investment and business operations in the near future, further reinforcing its strategic presence in global supply chains,” it concluded.

The reciprocal tax rate for Vietnam is reduced from 46% to 20%, the Vietnamese Ministry of Industry and Trade (MoIT) stated on its website last Friday.

The ministry said in late April, after the U.S. announced a delay in imposing reciprocal tariffs and agreed to start negotiations with Vietnam, Prime Minister Pham Minh Chinh established a Government Negotiation Delegation led by Minister of Industry and Trade Nguyen Hong Dien and directed the development of a negotiation plan.

"During the negotiation process, Vietnam and the U.S. focused on discussing and made significant progress on issues such as tariffs, rules of origin, customs, agriculture, non-tariff measures, digital trade, services and investment, intellectual property, sustainable development, supply chains, and trade cooperation,” the MoIT release noted.

"In the coming time, the two sides will continue to discuss and implement the following tasks towards completing an agreement on reciprocal trade based on the principles of openness, constructiveness, equality, respect, mutual benefit, and consideration of each other's development level," it said.

Registered FDI capital in Vietnam reached $24.09 billion in the first seven months of this year, up 27.3% year-on-year, despite U.S. tariff concerns, statistics from the National Statistics Office under the Vietnamese Ministry of Finance show.

Disbursed FDI rose 8.4% from a year earlier to $13.6 billion, the highest for the January-July period in five years.

Of this, the processing and manufacturing industry accounted for 81.6% ($11.1 billion), followed by real estate ($1.09 billion or 8%); and production and distribution of electricity, gas, hot water, steam, and air conditioning ($505.2 million or 3.7%).