A Return to Protectionism

Trump’s “America First Trade Policy”, announced on his first day back in office, reinforces his long-standing belief that tariffs protect the U.S. economy. He has previously threatened even higher tariffs—up to 60% on Chinese goods—and has pushed for a bilateral over multilateral trade approach.

The new tariffs have already sparked retaliation from major trading partners:

• Canada imposed 25% counter-tariffs on $155 billion worth of U.S. goods, with plans to increase them further.
• Mexico is considering similar retaliatory measures but remains open to negotiation.
• China plans to challenge the tariffs at the World Trade Organization (WTO) and is preparing unspecified countermeasures.

Global Economic Risks

Rising trade tensions could disrupt global supply chains and slow economic growth. The Pacific Economic Cooperation Council (PECC) predicts that Asia-Pacific growth could decline from 3.4% in 2024 to 2.9% over the next few years.

Additionally, Trump’s trade policies complicate inflation control—while he pushes for lower interest rates, tariffs tend to increase costs and delay monetary easing. Experts warn that these conflicts could lead to stagflation (low growth with high inflation) in the U.S. and recession risks for Canada and Mexico.

How Vietnam Could Be Affected

Vietnam, the U.S.’s largest trade partner in ASEAN, must closely monitor these developments. The U.S. accounted for 30% of Vietnam’s total exports in 2024, with a $104.6 billion trade surplus—one of the highest after China and Mexico.

Additional: See the view on South East Asia of Marco Rubio - the New United States Secretary of State

Two Possible Scenarios for Vietnam

1. Optimistic Scenario

   • Vietnam continues to benefit from U.S.-China trade tensions, attracting more FDI and export demand.
   • Supply chain shifts strengthen Vietnam’s position as a manufacturing hub.
   • U.S. tariffs remain unchanged on Vietnamese goods.

2. Risk Scenario

   • The U.S. extends tariffs to Vietnam, impacting key exports.
   • Stricter policies disrupt global trade, slowing FDI inflows into Vietnam.
   • A struggling Chinese economy could reduce Vietnam’s raw material imports, increasing costs.

The Vietnamese Ministry of Industry and Trade has prepared contingency plans, including market diversification and policy adjustments to mitigate risks.

Vietnam’s Strategy for Stability

To navigate uncertainties, Vietnam must:

• Strengthen domestic industries by improving technology, human capital, and business resilience.
• Enhance infrastructure and regulatory frameworks to maintain investor confidence.
• Balance trade diplomacy to sustain strong partnerships with the U.S., China, and other global players.

Despite the challenges, Vietnam’s economic fundamentals remain strong, with public debt below 40% of GDP and a strategic position in global trade. By focusing on long-term sustainability, smart diplomacy, and adaptability, Vietnam can turn challenges into opportunities while maintaining its economic momentum in 2025 and beyond.

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