Striking a balance for long-term gains in domestic manufacturing

According to Brian Lee Shun Rong and Chua Hak Bin, economists at Maybank Group, a reasonable and reciprocal tariff regime will not only protect exports but also strengthen domestic value chains and long-term production resilience.

Reasonable Reciprocity

Based on preliminary estimates, the newly proposed tiered tariffs appear to align with expectations that Vietnam’s export tariffs will be reduced to around 20–30%—a significant drop from the initially floated reciprocal rate of 46% announced on “Liberation Day.” The economists pointed out that Vietnam’s rapid progress toward an agreement, second only to the UK, is unsurprising given the strong bilateral momentum from both governments’ leadership.

The proposed deal, they note, is a net positive for Vietnam’s exports, manufacturing base, and inflow of foreign direct investment (FDI). As further details emerge—especially with the release of Q2 GDP figures—they anticipate revising their 2025 and 2026 growth forecasts upward.

Vietnamese exporters, already preparing contingency plans, are especially attuned to the outcome of the negotiations and the tariff schedules expected to be released by the White House. Lee and Chua believe a more moderate tariff hike—potentially doubling from a base of 10% to 20%, with effective rates rising from 18.5% to 22.8%—could soften the blow to second-half export volumes, assuming exemptions on electronics, pharmaceuticals, energy, and raw materials remain intact.

They argue that a reasonable tariff allows exporters to explore strategies like cost-sharing with U.S. importers to reduce disruptions. Yet, challenges remain: elevated U.S. inventory levels and weaker consumer demand, combined with earlier-than-usual seasonal stocking for the holiday season, could dampen short-term exports from Asia, including Vietnam.

Vietnam’s Competitive Edge

Currently, the U.S. accounts for roughly 30% of Vietnam’s total exports—or 25% of its GDP. Key sectors relying on this market include furniture, textiles, footwear, smartphones, and consumer electronics. The economists caution that tariff differentials among competing exporters in Asia will be a critical factor to monitor.

As the U.S. engages in trade talks with 14 countries ahead of the July 9th deadline for a 90-day tariff reprieve, countries with industrial similarities to Vietnam—such as India, Bangladesh, Thailand, Cambodia, and Indonesia—could face similar outcomes. However, Lee and Chua expect the spread in tariffs to remain modest, around 10%, and doubt any trading partner will enjoy tariffs below the 10% baseline.

Vietnam’s integration in U.S. supply chains also works in its favor. American brands such as Nike, which sources half its footwear and 28% of its apparel from Vietnam, along with Adidas and Lululemon, maintain deep sourcing links with the country.

An important point to watch is whether the U.S. will impose a flat 25% tariff on semiconductors and related electronics. However, the economists suggest that such a move is less economically justified for labor-intensive, low-margin consumer electronics.

Investigations under Section 232 concluded on May 7th, and electronics were largely spared from reciprocal tariffs. These items, which represent 29% of U.S. imports from Vietnam—including smartphones, computers, and flat screens—will likely continue to benefit from tariff exemptions.

While Washington may wish to onshore chip production for national security reasons, Lee and Chua argue that relocating the production of low-cost consumer electronics to the U.S. lacks comparative advantage and economic logic.

On the flip side, tariff exemptions on U.S. agricultural imports such as corn and soybean meal, effective since April, are expected to lower input costs for Vietnamese livestock firms. Nonetheless, the economists caution that zero tariffs on U.S. meat and poultry could intensify competition for local producers.

U.S. car exports are unlikely to see major gains, due to high-end pricing, complex logistics and tax structures, and the fact that many American auto brands, like Ford, already source from Thailand—a nation with tariff-free access to Vietnam.

FDI Magnet and Domestic Production Gains

Assuming a final 20% tariff rate is confirmed, Lee and Chua believe Vietnam will retain its competitiveness among “China1” manufacturing destinations in Asia. The rate is still lower than the 30% levied on Chinese exports, making Vietnam a favorable alternative as global firms seek to diversify supply chains.

Vietnam’s efforts to streamline business regulations and invest in institutional reforms further bolster its appeal. FDI has surged in response. Registered commitments jumped 51.2% to USD 18.4 billion in the first five months of 2025, accelerating from a 39.9% gain in the first four months. Disbursed FDI also rose 7.9% year-over-year to USD 8.9 billion by end-May.

However, the economists caution that the definition of “transshipped goods”—which are subject to higher tariffs—remains vague. Strictly speaking, such goods are fully assembled elsewhere and rerouted through Vietnam with minimal added value. This may affect electronics more than mature local industries such as textiles and footwear, which have deeper domestic supply chains.

In the long run, the U.S.'s approach to rerouting trade and imposing transshipment tariffs could encourage the build-up of upstream suppliers within Vietnam. This would increase local content and foster more resilient supply chains.

Many foreign firms are already bringing suppliers into Vietnam. Meanwhile, local initiatives such as Resolution 68 and incentives for FDI-led workforce development are aimed at strengthening domestic capabilities. Lee and Chua view this as an opportunity for Vietnamese businesses to deepen their internal capacity and emerge stronger in global manufacturing networks.