Trade War Between the US and China Causes a Dilemma for Vietnams Target GDP

Looking for 8% GDP Growth in 2025

In 2024, Vietnam achieved a trade surplus of over $123 billion with the United States, a rising star among emerging economies, particularly in the ASEAN region. Last year, the country's economy grew by 7.09%, making it one of the fastest-growing countries in Asia. According to the Minister of Planning and Investment, the Vietnamese government's GDP growth target for 2025 had been revised from 6.5% - 7.05% range to at least 8% in March. At that time, strong exports and imports were expected to support the new target this year: 12% growth on both sides or an estimated $30 billion increase in trade surplus.

In the government report, achieving the GDP growth depends on several factors:

Industrial Development and Upgrading: Manufacturing and high-tech industries will be key drivers of economic growth, especially in sectors such as electronic products and computer parts production. The official would continuously focus on attracting international investment to improve the competitiveness in these industry segments, enhance export trade, and increase job availability.

Expanding Export Trade: Vietnam has been experiencing substantial export growth since 2018, and its trade-to-GDP ratio was 166% in 2023 (World average: 59%); this makes it the second-highest in ASEAN, behind Singapore, which had a 311% trade-to-GDP ratio. The country exported $405 billion in 2024, which was 85% of its GDP. Therefore, an ambitious GDP growth highly relies on robust export trade growth.

Policies Inclined To Promote Economic Growth: The Vietnamese government pledges to focus more investment on infrastructure, such as transportation and energy, to enhance productivity. Boosting economic growth requires tax privilege policies and financial facilities for industries.

Inflation Threats

Inflation threatened Vietnam as it celebrated strong economic growth. The surge in energy prices, resulting from escalating demand from industries and households, the strong US Dollar against the Vietnamese Dong, and increases in prices for public services such as medical and education, put the country under high pressure from inflation. Although the government has reviewed the inflation expectation for 2025 to be 4.5%-5%, it was usually set at 4% in previous years. This revisit indicated that inflation pressure could not be ignored.

High US Trade Surplus - Above The Radar

In 2017-2018, Vietnam exported around $50 billion to the US with a $40 billion surplus. Since the US-China trade disputes began during the first Trump administration, exports from Vietnam to the US had increased rapidly year by year from 2019 and were triple by 2024, resulting in an 18.2% annual growth rate. However, Vietnam did not experience significant growth in imports from the US (steadily bouncing around $10 billion each year), although it had strong GDP growth during the same period.

Unlike the situation with Vietnam-US bilateral trade, the trade relationship between Vietnam and China flourished in the same period. Due to the geographic location and size differences between the two economies, Vietnam heavily relies on raw materials and semi-finished products from China for production. Within Vietnamese products exported to the US in 2024, the Chinese-added-value content was estimated at 19%. Chinese firms were also the key driver of FDI growth in Vietnam: China was only Vietnam’s 9th-largest investor in 2014 but rose to 6th within 10 years. In 2024, China invested $2.84 billion in Vietnam: the 3rd most significant source of FDI (14.4% of the country’s total FDI inflow). However, when FDI from Hong Kong was also taken into account, the total FDI inflow surged to almost 25%. This is still not the end of the story. Within the fund inflow from Singapore, the top overseas investor to Vietnam, a significant portion could be traced back to the fact that the financial sources were Chinese-related or of Chinese origin. These indicate that Chinese investors have a vital influence on the Vietnamese industry and economy. The annual bilateral trade between Vietnam and China in 2024 was $205 billion, a $33 billion increase compared to 2023, with a trade deficit of $82 billion (which was $49 billion in 2023).

Safe Haven Not Secure Any More

China's strong presence in Vietnam and huge trade deficits or surplus gaps led the US trade authority to believe that China was using Vietnam as both a "trade conduit" and a "safe haven" to avoid heavy tariffs on Chinese-origin products (see notes below). Both tactics aimed to reduce the impact of high tariffs on Chinese-origin products. The Chinese makers moved not only to Vietnam, but also to other ASEAN and southern countries.

Vietnamese At Crossroads

In the "Reciprocal Tariffs" announced by President Trump on April 2, a 46% charge would be applied to products imported from Vietnam. The country was surprised by the tariff, as it was the seventh-highest on the list. The Vietnamese government responded immediately and sought opportunities to discuss this subject with the US, agreeing to reduce deficits as much as possible. Although due to other reasons, Trump made a reciprocal tariff “90-day pause” to all countries (except China) on April 9 (the 10% common base rate of tariffs would still be in effect), Vietnam is under a hanging sword. To minimize the impact on their exports to the US, they have to find an agreeable solution.

Meanwhile, China was retaliating against US's ultra-high tariffs. Xi made a brief visit to Vietnam, Malaysia and Cambodia from April 14-18 with the objective of discussing and forming an alliance with these countries to counteract US trade tariffs. China's first target on this tour was Vietnam, which was the key target that President Xi aimed at.

As Vietnam is caught between two superpowers, no one can predict what the final outcome will be. Although Vietnam's leaders still show confidence in various occasions that the ambitious GDP growth is achievable, the future is full of uncertainties.

Note:

“Trade conduit” (also known as Country of Origin Laundering or Fraud) - An important part of production was completed within China and exported to Vietnam for simple processing before being re-exported to the United States with a lower tariff.

"Safe Haven" - manufacturing products in Vietnam with Chinese technology and supplies; exporting to the United States.