Vietnam's Economic Resilience: Navigating Trade Wars with Diversification and Domestic Strength

The U.S.-Vietnam trade relationship has become a focal point of global trade tensions, with reciprocal tariffs threatening to disrupt Vietnam's export-driven economy. As of June 2025, the U.S. has delayed imposing a 46% tariff on Vietnamese goods until July 9, pending a court ruling, while maintaining a 10% baseline tariff. This uncertainty highlights vulnerabilities in Vietnam's tech and textiles sectors—its economic workhorses—but also underscores its ability to adapt through domestic demand, infrastructure reforms, and market diversification.

The Tariff Threat: A Double-Edged Sword for Exports

Vietnam's $71 billion textiles, clothing, and footwear (TCF) sector faces existential risks. If the 46% tariff takes effect, U.S. import costs could jump by over 300% compared to 2024 levels. . Meanwhile, tech exports—already partially shielded by Annex II exemptions for electronics—remain exposed if secondary tariffs or supply chain complexities arise.

Yet, the immediate crisis has spurred proactive measures. Over 30% of Vietnam's TCF exports are now destined for the EU, ASEAN, and Oceania, up from 25% in 2023. Companies like Viet TCF Group are investing in traceability systems (e.g., U.S. Cotton Trust Protocol) to meet compliance demands, while others shift production to Cambodia and Laos to bypass tariffs.

Domestic Demand: The Quiet Engine of Growth

While export sectors grab headlines, Vietnam's domestic economy is a stabilizing force. Construction and retail sectors, fueled by urbanization and rising incomes, grew by 6.8% and 8.2% in Q1 2025, respectively. Real estate developers like Vingroup are expanding affordable housing projects, while retailers such as Aeon Mall are capitalizing on rising middle-class spending.

Infrastructure investments are another pillar. The government's $35 billion plan to upgrade ports, railways, and highways by 2030 aims to reduce logistics costs by 15–20%, making exports more competitive.

Diversification: Beyond the U.S.

Vietnam's pivot to regional trade deals is paying off. Its 17 free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have opened doors to markets like Japan and Canada. Exports to Australia's apparel market, for instance, rose 18% in 2024.

In tech, companies like FPT Corporation are leveraging AI and automation to reduce reliance on U.S. demand. FPT's cloud computing division, now 40% oriented toward Southeast Asia, highlights how diversification can hedge against U.S. trade risks.

Risks and Considerations

• Exchange Rate Volatility: A weaker Vietnamese dong (VND) could offset tariff costs but risks inflation. Monitor the VND/USD rate closely.
• Fiscal Policy: Vietnam's public debt (65% of GDP) limits fiscal flexibility. Watch for bond yields and central bank liquidity measures.
• Legal Uncertainty: The July 31 court ruling on tariffs could redefine the sector's trajectory overnight.

Investment Recommendations

1. Domestic-Driven Sectors:
2. Construction and Real Estate: Companies like Hoa Phat Group (HOSE: HPG) benefit from infrastructure spending.

3. Retail and Consumer Goods: Masan Group (HOSE: MSN) and VinCommerce (HOSE: VCM) are well-positioned for rising consumption.

4. Tech and Manufacturing with Diversified Supply Chains:

5. FPT Corporation (HOSE: FPT): Leverages AI and regional FTAs to reduce U.S. exposure.

6. PouYuen (HOSE: PYI): A footwear exporter pivoting to the EU and ASEAN markets.

7. Infrastructure Plays:

8. Ports and Logistics: Invest in companies like Tan Thanh (HOSE: TSH), which operates container terminals.

Final Take: Resilience Through Adaptation

Vietnam's economy is far from fragile. While U.S. tariffs pose a near-term hurdle, its agility in diversifying markets, upgrading infrastructure, and boosting domestic demand positions it to weather trade storms. Investors should focus on companies with diversified revenue streams and sectors insulated from external shocks. The coming months will test Vietnam's resolve—but its record of adaptation suggests it's ready for the challenge.