Vietnam, along with Canada, Mexico, Brazil, South Korea are among the countries set to be affected by Donald Trump’s decision to hike tariffs on all aluminum and steel imports starting March 4, according to a report by CNBC.
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A worker moves steel rolls in Hai Phong City, July 2024. Photo by VnExpress/Le Tan |
Vietnam sent $1.13 billion worth of steel to the U.S. last year, making it the 8th biggest supplier with a growth rate of 140% compared to 2023, the report added.
Tariff risks therefore cloud trade prospects, according to lender HSBC.
“Vietnam has the highest tariff risk in ASEAN, given its large trade surplus with the U.S.,” it said in a note released Tuesday.
Vietnam customs data show that it exported $112.5 billion and imported $10.5 billion from the U.S. last year, up 16% and down nearly 24% respectively compared to 2023.
Observers are also concerned that tariffs will erode the U.S. purchasing power, pump up inflation, and hamper the export prospects of many items, in addition to steel.
The announced tariffs might slow the U.S. economic growth down to 1.8% this year while inflation is expected to increase by 0.4 percentage points to 2.5%, according to the latest forecast by United Overseas Bank.
Its economy may only expand by 1%, with inflation rising to 3.1%, if the tax policies imposed on Mexico and Canada, which are currently suspended for a month, are implemented.
The upcoming tariffs might cause higher inflation and slow down the growth of U.S. consumer spending, especially on durable goods, said Olu Sonola, head of U.S. Economic Research at Fitch Ratings.
Durable goods include large household appliances, electronic devices, cars, furniture, and industrial machinery.
These are all key items that Vietnam ship to the U.S., bringing in tens of billions of dollars last year.
Some examples are furniture ($9 billion), phones ($9.8 billion), machinery, equipment and parts ($22 billion).
Textile and garment exports might also be affected, as last year Vietnam sent $16 billion worth of products to the U.S.
Pham Quang Anh, CEO of Dony Garment, which exports its products globally, said that tariffs are only part of the unpredictable trend in the global economy this decade.
His company is therefore cautious about expanding, regardless of whether orders increase sharply, he told VnExpress.
In addition to the main and traditional markets of the U.S. and Europe, the company is diversifying its shipment to the Middle East, Russia, and Africa.
“If we only diversify U.S. allies, it is not enough, because they may also adjust their policies similarly when Trump changes his mind,” Anh said.
Finding new markets might result in reduced profits, but it is a necessary move to lower risks, he added.
Tariffs and inflation risks may make the U.S. Federal Reserve more cautious in lowering interest rates, keeping the dollar strong.
The greenback has been gaining against the Vietnamese dong in recent weeks and might reach a new peak of VND26,000 in the third quarter, the United Overseas Bank forecasts.
While a stronger dollar provides exporters with benefits, they will also need to pay more for imports, and “Vietnam’s manufacturing is rather import-intensive,” HSBC said.
But analysts of the bank believe it is too early to make more specific assessments in the context of many uncertainties in the region and Vietnam.
At this time, the two questions for Southeast Asia are whether tariff risks will become a reality and how many companies are willing to move their supply chains, which will cost them both time and money.
