Vietnam’s economy, an emerging manufacturing juggernaut, is beginning to experience the pressure of deepening global trade disagreements, especially considering the U.S.’s imposition of hefty tariffs. The government’s economic performance report (GSO) fell short of expectations last Sunday. The report noted that the government revenue and spending balance funds have recorded below-average expenditures, suggesting a near end to unchecked economic optimism for Vietnam.
Moderate Slowdown: GDP Growth in the First Quarter
Based on data released by the General Statistics Office, Vietnam’s GDP registered an increase of 6.93% year on year for the first quarter of this year. Albeit lower than the 7.55% growth rate recorded in the prior quarter. While this figure remains strong, it signals a moderation in growth relative to the 7.5% expansion achieved in the previous quarter. Additionally, the pace at which Vietnam has been moving of late seems to be slowing.
The Brunt of US Tariffs: A 46% Decrease
The most striking contributor towards this dip is a direct outcome of steep tariff restrictions set by the United States. Washington now plays a significant role in the Vietnamese economy as the largest recipient of its exports. This makes Vietnam particularly susceptible to trade tactics employed by the U.S. Their recently imposed tariffs of up to 46% directly endanger the USD-reliant economy of Vietnam.
Heading for Achievements: Growth in the Midst of Uncertainty
Despite the headwinds to the economy caused by the U.S. tariffs, Vietnamese Prime Minister Pham Minh Chinh remains bright-sided. He disclosed that the nation is still pursuing “at least eight percent” growth this year, as announced on the government’s official news page. This sets a shocking expectation for the remaining quarters of the year, which need to deliver a GDP growth of 8.2 to 8.4 percent to accomplish the set target.
Economic Constraints: A Challenge to Vietnam’s Growth Model
Analysts are telling Vietnam’s current model of economic growth that depends on exports to the U.S. is highly vulnerable due to the U.S. tariffs. Research BMI’s senior country risk analyst, Sayaka Shiba, warned that under the worst-case scenario, Vietnam is likely to suffer a significant three percent loss in GDP this year.
Exporting Power: Critical Sectors Under Threat
New tariffs are said to significantly adversely affect a number of industries crucial to Vietnam’s trade-centric economy, including:
- Sea Products
- Textile and Apparel
- Leather and Allied Products
- Wood-Based Products
- Electrics
- Mobile Phones
The article points out how Nike and Adidas, two major US companies with large-scale Vietnam-based factories, will suffer diminished orders and income, prompting them to reduce factory space and shed jobs.
Trade Surplus: Trouble Inhibits Progress
The reasoning for these tariffs originated from Trump seeing the large trade surplus Vietnam has with the U.S. as an unjustifiable imbalance in trade. He stated that Vietnam has a 90% tariff on the US, which is how the surplus exists, referencing the total $123.5 billion surplus for the preceding year.
A Cautious Stance: Trade War Slump
The trade conflict initiated by Trump garnered skepticism, which people took as a sign to hold out on spending money. Many US-based analysts suggest that a large portion of foreign direct investors have accepted the status quo with the assumption that a change will only happen after the prospects of U.S.-Vietnam relations become clearer.
Navigating a Turbulent Trade Landscape
The Vietnamese economy is under heavy pressure trying to manage international trade and relations with other geopolitical players. Major concerns include the impacts of Trump’s tariffs on core industries and the expansion of the economy as a whole. Vietnam’s growth continues to sustain, but its level of resilience, the ability to diversify trading partners, solve the long-stalled trade wars, and withstand evolving geopolitical dynamics will dictate the contours of its future prospects.
