Anticipated variances in economic standings due to the impact of US tariff reductions
In the face of global shocks, particularly US tariff policy and geopolitical tensions, the Ministry of Finance (MoF) in Vietnam has reported that these factors are affecting global exports, trade flows, oil prices, and transportation. Anticipating risks for timely policy response is critical, and Vietnam is taking steps to ensure its exports remain competitive.
One sector that has been particularly affected is the textile industry. However, Vietnam ensures compliance with rules of origin and avoids being taxed as transshipped goods in US textile trade. This is achieved by strictly observing U.S. Customs and Border Protection (USCBP) country of origin marking rules, proving substantial transformation within Vietnam, and thoroughly preparing documentation that evidences genuine Vietnamese origin.
Key measures include clear and durable country of origin marking, following strict rules of origin based on manufacturing and tariff-shift tests, comprehensive documentation of production processes and costs, and cooperation with US customs regulations. By doing so, Vietnam proves the authenticity of its products rather than engaging in superficial or intermediary processing.
The MoF is expected to recalculate these figures to formulate solutions, mitigate tariff impacts, and expand export markets. Recently, on August 7, new US reciprocal tariffs took effect, with goods originating from Vietnam now subject to a 20% tariff under the new policy. Despite this, the textile industry, one of Vietnam's top three export groups to the US, has managed to maintain its position.
The US remains one of the fastest-growing markets for Vietnam, with export growth of 11.6%. The textile and garment sector employs around three million workers, accounting for one-quarter of Vietnam's industrial manufacturing workforce. Experts note that the 20% tariff on Vietnamese goods is higher than that of some Southeast Asian countries, but the difference may not significantly affect trade with the US.
Businesses in the wood industry, another significant export sector, have also managed to maintain stable order volumes despite the US imposing a minimum 10% tariff. Vietnam leads the region in export value to the US, and its wood sector has significant advantages in raw material sources, production costs, and skilled labor. From a tax standpoint, Vietnam is better positioned than China or India, and roughly on par with Bangladesh.
However, Vietnam must ensure transparent supply chains and rules of origin compliance to avoid being taxed as transshipped goods, as textile input materials are highly diverse and Vietnam has only localised about 50-60%. Any goods determined to have been transshipped from a third country to evade higher tariffs will be subject to an additional 40% import duty.
In response, businesses in the wood industry have negotiated with buyers to share the additional tax burden. Recent global developments suggest that risks are possible for Vietnam in terms of trade and foreign investment. Nevertheless, Vietnam actively pursues reforms and trade discussions with the US to ensure transparent regulatory frameworks, support recognition as a market economy, and reduce tariff risks for exporters.
Sources: [1] Vietnam Briefing [2] VietnamPlus [3] USITC [4] Vietnam Law Mag [5] Vietnam Briefing
- In the wood industry, another significant export sector for Vietnam, businesses have negotiated with buyers to share the additional tax burden due to US tariffs, demonstrating the resilience of Vietnamese businesses in the face of finance-related challenges from foreign markets.
- The Ministry of Finance (MoF) in Vietnam is expected to recalculate export figures and formulate solutions to mitigate tariff impacts and expand export markets in the finance industry, particularly focusing on the textile and wood industries, which are among the top three export groups to the US.
