The Impact of the new US Tariffs to Vietnam (Part 1)

Apr 11, 2025
Vietnam’s export economy has been dealt a sudden shock by the Trump administration’s new U.S. tariffs announced in April 2025. These tariffs - a steep 46% levy on all Vietnamese imports - threaten to ripple across multiple industries, from electronics and textiles to furniture and agriculture. Such broad measures raise urgent questions for Vietnamese exporters: How will these tariffs impact different sectors, and what can businesses do to adapt?

A clear takeaway is the need for market diversification. In particular, the European Union (EU) stands out as a promising alternative market, albeit one with its own complex regulatory demands. This article analyzes the multi-industry impacts of the U.S. tariffs, explores the EU as a strategic outlet and EU compliance requirements, and highlights case studies and best practices for Vietnamese exporters to navigate this turbulent period.

A container ship being loaded at Chu Lai Port in Vietnam for direct export. Hefty new U.S. import tariffs mean Vietnamese exporters must rethink market strategies and compliance.

A Multi-Industry Shock

The scope of the new U.S. tariffs is unprecedented for Vietnam’s trade-dependent economy. The blanket 46% tariff on Vietnamese goods, set to take effect on April 9, 2025, is “shockingly high” and far above what businesses expected. For context, the U.S. is Vietnam’s largest export market - Vietnam recorded over $123 billion trade surplus with the U.S. in 2024 - so a tariff of this magnitude poses a serious threat across sectors. Below we break down the impact on key industries:

  • Electronics and Electrical Machinery: This is Vietnam’s biggest export category to the U.S., worth over $41 billion in 2024. It includes smartphones, computers, and machinery. Many electronics manufacturers (including multinational investors) had shifted to Vietnam as an alternative to China, especially during the earlier trade war. Now, with a 46% tariff, those cost advantages evaporate. U.S. tech retailers may need to raise prices, and producers could reconsider their supply chains. For example, Vietnam became a key sourcing hub for U.S. companies, with imports from Vietnam rising 19% in 2024 as firms diversified away from China. A sudden tariff surge forces painful adjustments - potentially relocating some production or focusing on other markets.
Vietnam’s Growing Electronics Industry at Work

 

  • Textiles and Apparel: Vietnam’s textile and garment industry, a mainstay of its exports, faces a drastic blow. The U.S. is a top buyer of Vietnamese apparel and footwear (worth around $8-9 billion each in 2024 for footwear and garments. These labor-intensive goods operate on thin margins. A 46% tariff will almost certainly reduce order volumes, squeeze margins, and cost jobs in this sector. Major U.S. brands like Nike and American Eagle source heavily from Vietnam (Nike makes about 25% of its shoes in Vietnam), so they are now hit with higher costs. In fact, following the tariff news, Nike’s stock dropped on concerns over rising sourcing costs. Vietnamese apparel manufacturers may look more to the EU (which under the EVFTA trade deal offers tariff reductions) or other regional markets to offset the U.S. decline.
High-Volume Clothing Production in a Vietnamese Garment Factory
  • Footwear: As with apparel, footwear exporters are hard-hit. The U.S. takes a large share of Vietnam’s shoes - footwear exports to the U.S. were about $8.8 billion in 2024. Companies in this sector often supply American retail chains and depend on volume. A sudden cost increase of nearly half could lead U.S. buyers to scale back orders or seek suppliers in other countries. Vietnamese firms will need to either absorb some costs (untenable for long), renegotiate contracts, or find new buyers. There is already talk of U.S. retailers exploring production shifts; for instance, some toymakers and apparel companies manufacturing in Vietnam are “renegotiating factory costs and shifting production” in response. This instability underscores the importance of not relying on one market
Footwear Production Line in Vietnam
  • Furniture and Wood Products: Vietnam is a major furniture supplier to the U.S. (second only to China in wooden furniture). In 2024, furniture exports to the U.S. reached $13.2 billion. The new U.S. tariffs directly threaten this industry’s competitiveness. Beyond tariffs, U.S. regulations like the Lacey Act already impose compliance requirements on wood products, banning illegal timber and requiring declarations of wood origin. Vietnamese furniture companies have spent years adapting to those rules (e.g. ensuring timber is legally sourced and traceable). Now they face a double challenge: compliance and prohibitive tariffs. Profit margins for wood exporters, already slim due to compliance costs, could vanish. Some U.S. furniture importers might pass costs to consumers or reduce orders. Vietnamese exporters, in turn, may try to pivot to markets like the EU, where demand for sustainable furniture is growing (and where the EVFTA has eliminated most tariffs). However, the EU’s upcoming anti-deforestation rules will require equally stringent due diligence on wood sourcing (discussed more below). In short, the wood/furniture industry must innovate and diversify quickly to survive this hit.
     
Wood Products in Transit: From Vietnamese Mills to Global Markets
  • Agriculture and Seafood: Key Vietnamese agri-exports - such as coffee, seafood, cashew nuts, pepper, rice, and fruits - also feel the pinch. The U.S. buys a significant share of Vietnam’s shrimp, fish, coffee, and pepper. While these commodities may not have been explicitly targeted by past U.S. tariffs, a blanket tariff raises their landed cost. For instance, Vietnamese shrimp exporters have already faced U.S. anti-dumping duties and strict FDA inspections in the past. A 46% tariff on top makes Vietnamese seafood far less competitive in price. This could lead American importers to seek other countries for supply, harming Vietnam’s farmers and processors. Similarly, high tariffs on coffee or cashew could drive U.S. buyers to African or Latin American sources. The agriculture sector is often comprised of many SMEs and farmers, so the shock could be widespread domestically. Diversifying into markets like Europe or Asia is an avenue, though each has its own standards (EU sanitary and phytosanitary standards, traceability requirements, etc.). Notably, Vietnam’s export mix to the EU already includes a lot of agricultural goods - e.g. coffee, cashew, seafood - and those have grown under the EVFTA’s reduced tariffs. This could cushion the blow if producers can redirect shipments, but meeting different market standards will be essential.
Shrimp Harvesting at a Vietnamese Aquaculture Farm

Overall, the tariff shock is economy-wide. Industries that boomed as Vietnam became a “China+1” manufacturing base are now exposed. Economists estimate Vietnam’s GDP growth could slow markedly if exports to the U.S. plummet - one report noted U.S. exports account for nearly 30% of Vietnam’s GDP. The government in Hanoi has called the U.S. duties “unfair” and urgently seeks negotiations. There is speculation that these extreme tariffs might be a negotiating tactic by Washington - possibly to pressure Vietnam into reducing its trade surplus by buying more U.S. goods (like Boeing planes, agricultural products). Indeed, right before the tariffs, Vietnam had cut some import duties and pledged to purchase more U.S. goods in an attempt to appease U.S. concerns. A high-level dialogue is ongoing in hopes of a deal to remove the tariffs. However, Vietnamese businesses cannot bank on a quick reversal. In the short term, they must plan for the worst - meaning adapting strategies for a world where the U.S. market is far less accessible than before.

The Market Diversification Imperative

This tariff crisis underscores a critical lesson: Vietnam’s exporters must diversify their markets to reduce over-reliance on any single country. The U.S. trade tensions aren’t an isolated incident; they follow on the heels of earlier trade wars and supply chain disruptions (from the U.S.-China trade war to the COVID-19 pandemic). Savvy companies anticipated such risks and started expanding into other markets in recent years. One of the most promising destinations has been the European Union.

The EU offers a huge consumer market of 27 countries with high purchasing power and, importantly, a stable trade agreement with Vietnam. The EU-Vietnam Free Trade Agreement (EVFTA), in effect since August 2020, has already significantly boosted trade. Vietnam’s exports to the EU surged to US$68.4 billion in 2024, up 47.5% from 2020. This growth demonstrates the real gains companies can achieve by leveraging the EVFTA’s tariff reductions and the EU’s demand for diverse products. Key Vietnamese exports to Europe include electronics, apparel, footwear, coffee, seafood, wood products, and more. Many of these categories overlap with those hit by the U.S. tariffs, suggesting the EU can absorb at least some of the capacity if firms pivot properly.

Why EU Is a Prime Alternative?

  • Preferential Access and Large Market: Under the EVFTA, the EU has been phasing out tariffs on Vietnamese goods. About 65% of EU import duties were eliminated from day one, and within 7 years 99% of Vietnamese exports to the EU will enjoy zero tariffs. This dramatically improves price competitiveness in Europe. For example, popular products like electronics already face 0% EU tariff under EVFTA. So, while Vietnamese electronics now suffer a +46% duty in the U.S., they enter the EU duty-free (up to rules-of-origin requirements). Furthermore, the EU market is enormous - the EU’s population (over 440 million) and high GDP mean significant demand. No single country can replace the U.S., but the EU collectively comes closer than most. In fact, Vietnam’s export turnover to the EU is now roughly half of that to the U.S. and growing. Many Vietnamese companies have already found new growth in Europe’s consumer markets in recent years, which can be expanded.

     
  • Market Stability and Predictability: The EU, while stringent in regulations, is generally seen as a rules-based, predictable trade partner. Trade policy in the EU is not prone to sudden tariff hikes across the board without lengthy deliberation and WTO considerations. This contrasts with the volatility of U.S. trade policy in recent years (shifting tariffs via executive actions). Vietnamese businesses may find the EU’s environment more predictable for long-term planning. For instance, the EU’s tariff rates are locked in by the FTA, and any safeguard measures or anti-dumping duties follow transparent processes. The new U.S. tariff, by contrast, was a unilateral surprise move. Diversifying markets adds stability - losses in one market might be offset by steady sales in another.

     
  • EU Demand for Vietnam’s Products: The EU consumer base has strong demand for many goods Vietnam produces. For example, European fashion retailers import garments and footwear from Vietnam (especially as they diversify sourcing away from China). European coffee roasters value Vietnam’s robusta coffee (Vietnam is the world’s largest robusta exporter) - but now EU buyers also increasingly demand sustainable, traceable coffee, pushing Vietnamese producers to upgrade quality. The EVFTA also opened quota-based opportunities for products like Vietnamese rice (with reduced tariffs up to certain volumes), which companies like Linsan have capitalized on. Furniture and wooden goods are also sought after in Europe, especially if certified sustainable - Vietnam’s wood industry can find a market among European importers adhering to eco-conscious sourcing. Notably, European business leaders have expressed interest in Vietnam as a stable supplier. Belgian and Dutch investors, for instance, see Vietnam as a high-growth partner and emphasize the need for compliance with EU standards for long-term success. This suggests a receptive market if Vietnamese exporters meet the requirements.

Of course, diversifying to the EU (and other markets like Asia or the Middle East) is not without challenges. Companies must navigate different consumer preferences, logistics routes, and stringent regulations. Many markets outside the U.S. are highly competitive or smaller in scale, making it hard to fully replace lost U.S. volumes. The EU’s combined market is large, but breaking into individual EU countries often requires understanding local languages, cultures, and distribution networks. Vietnamese exporters should approach this strategically:

  • Leverage Trade Agreements: Besides the EVFTA, Vietnam has the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) and various bilateral deals that open markets in Asia-Pacific, Canada, etc. For instance, CPTPP gives Vietnam preferential access to countries like Japan, Canada, and Australia - those could also help diversify sales of apparel or seafood if U.S. demand falls. Within Asia, regional markets (China, ASEAN neighbors, India) could take up some slack, though many of those are also Vietnam’s competitors or have their own barriers.
Viet Nam positions itself to be the EU’s high-tech partner
  • Enhance Marketing and Distribution in Target Markets: Entering the EU might involve partnering with European distributors, attending trade fairs (in e.g. Frankfurt, Paris) to showcase products, and utilizing Vietnam’s trade counselor offices in the EU (as mentioned by Vietnam’s Trade Counselor in Belgium who provides market access advice. A company might need to tailor its products to European tastes or standards - e.g. different packaging, sizing, or certifications (organic labels, fair-trade, etc. if selling foods).
     
  • Utilize Support from Industry Groups: Organizations like VCCI (Vietnam Chamber of Commerce and Industry) and sector associations (textile, seafood, furniture, etc.) are actively encouraging members to explore new markets. In fact, VCCI and AmCham together have been involved in lobbying against the U.S. tariffs, but they also support exporters in compliance and market info. Vietnam’s government is also likely to assist affected sectors with trade promotion programs in Europe, given the national interest in sustaining export growth.

In summary, diversification is no longer just a long-term goal - it is an urgent mandate. The current U.S. tariff situation is a wake-up call that even Vietnam’s most established market ties can be upended overnight. Companies that proactively hedge their bets by expanding into Europe (and other markets) will be more resilient. The EU stands out as the top alternative market due to its size and the EVFTA advantages, but success requires meeting the EU’s high bar on regulations and sustainability. The next section delves into exactly those regulatory differences between exporting to the U.S. versus exporting to the EU, which every exporter must understand when shifting markets.

Follow VertZéro to stay updated on the upcoming challenges businesses may face in the part 2 of article when entering the EU market and discover how FPT IS and VertZéro can partner with you to navigate this turbulent period and turn compliance into competitive advantage.

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