Vietnam’s ongoing negotiation efforts to help lower Trump's tariff rate: broker

The deadline for the U.S. to impose reciprocal tariffs is April 9, and Vietnam’s ongoing negotiation efforts could help lower the tariff rate, according to KB Securities Vietnam (KBSV).

KBSV conducted an analysis of the potential impact of Trump’s tariffs on Vietnam following the announcement on April 2, which included a new round of global tariffs, with the reciprocal tax on Vietnamese imports set at 46%.

The broker noted that while this tariff rate is significantly higher than those of competing countries like India, Indonesia, the Philippines, and Malaysia, it could still be mitigated by Vietnam's continued advantages - namely low labor costs and a strategic location for trade.

The 46% reciprocal tariff creates a substantial disadvantage for Vietnam, particularly when it comes to attracting FDI enterprises focused on the U.S. export market. As a result, the flow of new FDI into Vietnam is likely to slow temporarily.

Potential investors are wary of the escalating trade tensions and the risks associated with investing in manufacturing facilities in the country, especially with the rising costs linked to the tariffs. Companies already operating in Vietnam that rely heavily on exports to the U.S. may start cutting back production capacity.

It is estimated that around 30% of the production capacity in Vietnam is dedicated to exports to the U.S., and these businesses may shift their operations to countries with lower tariffs to reduce costs.

Despite the short-term challenges, KBSV suggested that the overall flow of FDI into Vietnam can recover. This recovery could be driven by FDI enterprises with export markets outside the U.S. that continue to find Vietnam attractive due to its low labor costs, favorable location, and government policies designed to encourage investment.

Companies like Samsung, LG, and Intel, which have substantial export markets outside the U.S., may continue to operate in Vietnam, even if they temporarily pause expansion plans due to excess production capacity intended for the U.S. market.

In the next one to two years, these businesses may need more time to realign their production and shift orders to new markets outside the U.S., but Vietnam’s overall appeal remains strong in the longer term.

The deadline for the U.S. to impose reciprocal tariffs is April 9, and KBSV believed that Vietnam’s ongoing negotiation efforts could help lower the tariff rate. Moreover, Vietnam could use this situation to push for tariff reductions on key raw materials and auxiliary products used in U.S. manufacturing, such as electronic components, electrical and electronic equipment, and semiconductor chips.

By focusing on these sectors, Vietnam could continue to attract FDI in the long run, particularly in industries critical to the U.S. manufacturing sector, further bolstering its position as an investment hub, the broker noted.

In conclusion, while the immediate impact of President Trump's tariffs poses challenges for Vietnam’s FDI inflows, the country’s ongoing advantages, combined with its strategic trade location and the possibility of tariff reductions, ensure that it remains an attractive destination for FDI targeting non-U.S. export markets, it added.