Trade War Analysis
VN Taxes
US-China Trade War Scenarios and Impact on Vietnam
Background and Current Situation
US Position
Trump's Tariff Policy
Increased tariffs to 54% on Chinese goods (up from 25% in 2018) and 46% on Vietnamese goods.
Trade Deficit
Aims to reduce trade deficits with:
- China: $295.4 billion (2024)
- Vietnam: $123.5 billion (2024)
Negotiation Stance
Open to negotiations but maintaining a hard stance, according to advisor Peter Navarro.
China's Response
Retaliatory Tariffs
Additional 25-40% tariffs on US goods (agricultural products, automobiles, LNG).
Currency Adjustment
Slight devaluation of CNY to 7.3 CNY/USD (3% depreciation since early 2025).
Export Support
Increased subsidies (10-15%) for businesses to maintain export competitiveness.
Current State of Affairs
The current situation represents an "economic cold war" with escalating tensions. Neither side is willing to make concessions:
- US refuses to reduce tariffs
- China refuses to open its markets or commit to currency reforms
Trade War Scenarios
Based on current dynamics between the US and China, three main scenarios are projected:
US Actions: Increase tariffs to 75-100% on Chinese goods; implement additional 25% penalty tariffs on suspected transshipment countries (including Vietnam).
China's Response: Raise tariffs to 50-60% on US goods; ban rare earth exports (80% of global supply); accelerate CNY devaluation (8-9 CNY/USD).
Timeline: Beginning mid-2025, lasting 12-24 months without diplomatic breakthrough.
Analysis: Trump seeks a "big win," but China unlikely to yield easily.
US Actions: Maintain 54% tariffs on China and 46% on Vietnam; add non-tariff barriers (origin verification, ESG standards).
China's Response: Maintain 40% tariffs; increase exports to ASEAN and EU via Vietnam; strengthen Belt and Road Initiative (BRI) to reduce US dependence.
Timeline: 6-18 months, until economic or internal political pressure forces concessions.
Analysis: The "new normal" continuation of the trade war that began in 2018, with heightened tensions.
US Actions: Supply chain decoupling; formation of separate trade blocs (USMCA, IPEF); maintain tariffs while focusing on self-sufficiency and technology (chips, AI).
China's Response: Strengthen BRICS and BRI alliances; maintain tariffs while focusing on self-sufficiency; Vietnam forced to choose sides or remain neutral.
Timeline: 2025-2030, with periodic escalations.
Analysis: Complete decoupling unlikely due to high costs, but the trend is increasing.
Impact on Vietnam's Economic Development
Vietnam, with exports representing 85% of GDP (2024) and high dependency on both the US (30% of export value) and China (37.6% of imports), faces multi-dimensional impacts from each scenario:
Scenario 1: Full-Scale Escalation - Impact
- 46% tariffs (potentially up to 71% with transshipment penalties) could reduce exports by $40-50 billion (electronics, textiles, footwear)
- Samsung and Nike facing losses of $6-12 billion annually
- CNY devaluation (20-25%) increases import costs by 10-15%
- Additional $13.5-20 billion on total imports of $135 billion from China
- US companies (Intel) and Korean companies (Samsung) reduce investments by 20-30%
- Shift to India, Mexico
- Loss of $5-10 billion in FDI flows
- Rare earth shortage from China reduces electronics production (Samsung, LG) by 15-20%
Scenario 2: Sustained High Tension - Impact
- 46% tariffs reduce exports by $25-30 billion
- Samsung loses $5-6 billion, textiles lose $5-7 billion
- Companies shift 20% to EU, Japan ($10-15 billion)
- Mild CNY devaluation (7.3-7.5 CNY/USD) increases import costs by 5-7% ($7-9 billion)
- Chinese export subsidies help stabilize component prices
- Samsung, LG pause new investments (loss of $2-3 billion)
- Companies don't withdraw completely due to low labor costs ($3/hour)
- Vietnam becomes transshipment point for Chinese goods (increase of $5-10 billion)
- Increased risk of penalty tariffs from US
Scenario 3: Prolonged Economic Cold War - Impact
- 46% tariffs cause long-term loss of $30-40 billion
- Samsung, Nike relocate 30-40% of production to India, Indonesia
- China focuses on self-sufficiency, reducing component exports to Vietnam ($10-15 billion loss)
- Forces localization (currently only 30% in electronics)
- US and China divide into blocs, Vietnam remains neutral but loses 20% FDI from both ($5-7 billion)
- Offset by Japanese, Korean investment ($3-5 billion)
- Chip shortage from both China and US reduces electronics output by 20-25%
- Samsung loses $2-3 billion annually
Vietnam's Strategic Response
Overall Impact Assessment
Short-term (2025)
GDP decrease of 1-3% depending on scenario
$25-50 billion export loss to US
$7-20 billion increase in import costs from China
Medium-term (2026)
Recovery to 4.5-6.5% growth
Market diversification (EU, Japan, ASEAN)
Potential negotiations with US
Most Affected Sectors
Electronics (Samsung): 30-50% revenue loss to US
Textiles and footwear: 30-50% revenue loss to US
Potential Opportunities
Industrial parks: Short-term benefit from Chinese FDI
Position as neutral trade intermediary
Accelerated localization and tech development
Strategic Response Options
Purchase $10-15 billion of US goods (LNG, Boeing) to reduce tariffs to 25-30%
Leverage Comprehensive Strategic Partnership status
Increase exports to EU (EVFTA), Japan (CPTPP) by $15-20 billion over 2 years
Reduce US dependency from 30% to 20% of total exports
Invest $5-10 billion in component manufacturing, textiles
Reduce China dependency from 37.6% to 30% of imports
Avoid choosing sides in US-China conflict
Increase monitoring of transshipment to prevent US penalties
Conclusion
Scenario Probabilities
Full-Scale Escalation
Probability: 35%
The most damaging scenario for Vietnam
Sustained High Tension
Probability: 50%
Most likely scenario, allowing Vietnam flexibility
Prolonged Economic Cold War
Probability: 15%
Long-term pressure but potential for Vietnam to emerge as independent manufacturing hub
Impact Summary
GDP Impact 2025
Decrease of 1-3% depending on scenario
GDP Recovery 2026
Growth of 4.5-6.5% depending on scenario and strategy
Most Likely Outcome
"Sustained High Tension" scenario with Vietnam adapting through market diversification and strategic neutrality
Key Takeaways
The US-China trade war presents significant challenges for Vietnam's export-oriented economy, but also opportunities for strategic repositioning:
- Short-term export reduction to US market
- Increased import costs from China
- Potential FDI reduction from both major powers
- Supply chain disruptions in critical components
- Market diversification beyond US dependence
- Accelerated localization and domestic industry development
- Strategic position as neutral intermediary
- Leverage of existing FTAs with 17 partners
With appropriate strategy implementation, Vietnam can not only survive the trade war but potentially emerge stronger with a more diversified, resilient economic structure.
US-China Trade War Scenarios and Impact on Vietnam | Interactive Dashboard | © 2025
