Can Vietnam Sustain 8% Growth Amid U.S. Tariff Threats?

Vietnam’s government has reaffirmed its ambitious 8% GDP growth target for 2025, even as it confronts the looming specter of U.S. tariffs that could cripple its export-dependent economy. With first-quarter growth slowing to 6.93%—the weakest in over a year—the nation’s path to achieving its goal hinges on deft diplomacy, structural reforms, and resilience in key industries.

The Crossroads of Growth and Geopolitics

Vietnam’s economy has long been a poster child for Southeast Asian dynamism, fueled by robust exports and foreign direct investment (FDI). However, the U.S. administration’s April 2025 announcement of a 46% “reciprocal tariff” on Vietnamese imports—citing inflated claims of Vietnam’s trade barriers—has thrown this trajectory into doubt. The tariffs, currently in a 90-day grace period with a reduced 10% rate, could reduce Vietnam’s GDP growth by over 1.5 percentage points, according to the IMF, which now forecasts 6.1% growth for 2025.

Sectoral Vulnerabilities and Strategic Adjustments

The stakes are highest for Vietnam’s export-heavy industries:
- Electronics and Garments: These sectors, accounting for nearly 40% of U.S. exports, face immediate margin erosion. The 16% existing tariff on textiles, coupled with the proposed 46% increase, could force businesses to absorb losses or relocate production.
- Wood and Footwear: Vietnam’s $17 billion in wood and footwear exports to the U.S. could lose competitiveness to Thailand and Cambodia.
- Real Estate and Infrastructure: Domestic liquidity constraints in real estate—already struggling with oversupply—threaten to dampen urbanization-driven growth.

To mitigate these risks, the government is pursuing a three-pronged strategy:
1. Diplomatic Offensives: High-level talks with the U.S. aim to reduce the tariff rate, leveraging Vietnam’s proposed $6 billion LNG purchases and $90 billion in U.S. equipment imports.
2. Market Diversification: Accelerating FTA utilization (e.g., EU, Japan) and boosting exports to ASEAN to reduce reliance on the U.S.
3. Infrastructure Investment: Projects like the $2.5 billion Haiphong–China railway and nuclear power plants seek to stimulate domestic demand and attract FDI.

The Calculus of Growth and Risk

Analysts highlight both opportunities and pitfalls. While the government’s flexibility in currency and interest rate management has stabilized the VND/USD exchange rate—depreciating just 1% since the tariff announcement—the stock market has been volatile. The VN-Index plunged nearly 7% on the tariff news, with IT outsourcing giant FPT dropping sharply amid investor panic.

Yet, some see silver linings. Chu Thanh Tuan of RMIT argues that the crisis could accelerate reforms, such as faster FTA implementation and supply chain diversification. Vietnam’s average tariff on U.S. goods is already 7% lower than U.S. tariffs on Vietnamese exports, a data point the government is emphasizing in negotiations.

Conclusion: A High-Wire Act for Vietnam

Vietnam’s 8% growth target is far from assured. The IMF’s 6.1% forecast underscores the steep uphill climb, particularly if tariffs settle above 25%. However, the government’s agility in balancing diplomacy, infrastructure spending, and FDI attraction offers a path forward.

Key data points:
- GDP Growth: 6.93% (Q1 2025) vs. 7.55% (Q4 2024).
- Trade Exposure: U.S. exports account for 30% of Vietnam’s GDP.
- Sector Risks: Textiles face a potential 62% tariff burden (existing 16% + proposed 46%).

Success hinges on two critical factors:
1. U.S. Negotiations: A tariff reduction to 25% or lower would avert a full-blown crisis.
2. Domestic Reforms: Addressing real estate liquidity and accelerating FTA utilization could unlock new growth engines.

Vietnam’s resolve to “double down” on its growth ambitions is clear. Yet, with global trade tensions simmering, its ability to navigate these headwinds will determine whether it achieves its 2025 target—or becomes another casualty of protectionism. The world is watching closely.