Will imported cars flood into Vietnam amid Trump's tariffs?

Originally scheduled to go into effect on February 4, President Donald Trump's import tax edict on Canada and Mexico was delayed for a month after negotiations resulted in an accord. Trump already declared his plan to impose tariffs on European goods on January 31. The European Union (EU) has stated that it will react forcefully, even though no concrete decisions have been reached between the two parties. The U.S.-initiated trade war has put the automobile industry in the EU, Mexico, and Canada on edge, as it is a significant export sector for these countries.

According to Allianz Trade insurance company, the North American auto supply chain includes 26 production sites in Mexico and 5 in Canada. Between 80% and 85% of the products manufactured in these locations are exported to the U.S. If a 25% import tariff is implemented, it would exceed the profit margins of any company in the supply chain.

European automakers also face high risks if the U.S. imposes a 10% import tariff. Major car manufacturers like Stellantis, Volkswagen, and Volvo Cars could see a 15-25% reduction in profits when exporting to the U.S.

Japanese automakers will also be impacted; Nissan is particularly at risk because of its sizable facility in Mexico and the fact that 40% of its sales come from the United States. Toyota, Honda, and Mazda will also have difficulties.

Automobile makers are thinking of new tactics in the face of a potential trade war with the United States, such as spreading their shipments to other markets in order to reduce losses. Many automakers are interested in Vietnam as a potential market for automobiles.

The Ministry of Industry and Trade predicts that by 2030, Vietnam’s auto market will reach 1-1.1 million vehicles per year. By 2035, the market is expected to grow to 1.5 million vehicles annually and between 5 and 5.7 million vehicles per year by 2045.

The World Bank also forecasts that automobile sales in Vietnam will reach approximately 1.5 million vehicles per year by 2035. After that, the market is expected to enter an exponential growth phase, driven by rising household incomes. By 2050, annual sales are projected to reach 6.8 million vehicles, with nearly 54 million cars sold between 2035 and 2050.

Under commitments in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam will gradually reduce import tariffs on completely built-up (CBU) automobiles each year, reaching 0% by 2030. As of January 1, 2025, the import tax on CBU vehicles from CPTPP member countries—including Mexico, Canada, and Japan—has been reduced to 35% in Vietnam.

According to Vietnam’s Preferential Import Tariff Schedule, implemented under the EU-Vietnam Free Trade Agreement (EVFTA), tariffs on CBU automobiles from the EU will also gradually decrease each year, reaching 0% by 2030. As of January 1, 2025, import tariffs on CBU cars from the EU have been lowered to 30% for vehicles with engine capacities over 3,000cc and 35% for those with engine capacities under 3,000 cc.

In the upcoming years, tariffs on CBU autos from TPP and EU nations will continue to drop by an average of 7% annually. Cars from Germany, France, Italy, the Czech Republic, Japan, Mexico, and Canada will cost less to import thanks to this.

Manufacturers will shift their attention to other markets if a trade war with the United States breaks out and it becomes more difficult to ship cars to the United States from the EU, Mexico, and Canada. Vietnam is anticipated to draw a lot of interest from automakers with a plan to open its auto industry completely by 2030. It is anticipated that more cars at comparable costs will be imported into Vietnam from the EU, Mexico, Canada, and Japan.

Opening the automobile market will allow consumers access to high-quality imported cars at reasonable prices. However, this also presents challenges for Vietnam’s domestic automobile industry. Can Vietnam’s auto industry rise to compete with imported cars? Or will it lose on its home turf, leaving the market open for foreign imports to dominate?