Thiên Lương wrote this article in Vietnamese and published it in Luật Khoa Magazine on July 19, 2025. Đàm Vĩnh Hằng translated it into English for The Vietnamese Magazine.
Tariff negotiations between the United States and Việt Nam officially concluded late on July 2, 2025 (Việt Nam time), arriving earlier than the expected end of a 90-day grace period on July 7.
President Donald Trump announced the new trade agreement on his social media platform, Truth Social. Under the deal, Việt Nam will face a 20% tariff on domestically produced goods and 40% on transshipped goods, while opening its market to U.S. products at a 0% tariff rate. The agreement supposedly followed an intense negotiation process that included a second personal phone call between General Secretary Tô Lâm and Trump, and three separate Vietnamese delegations sent to Washington.
In the context of recent U.S. tariffs rolled out on several other countries—such as Brazil (50%), Thailand (36%), and the Philippines (20%)—Việt Nam’s 20% rate may not appear particularly high. However, this figure raises a deeper question for the nation’s economic model: With foreign-invested enterprises (FDI) accounting for over 70% of its export sector and a heavy reliance on imported raw materials, is that 20% tariff bearable?
Low Domestic Content, High Import Dependency
Since opening its economy in 1986, and especially following the enactment of the Investment Law in 1987, Việt Nam has attracted a steady and growing stream of foreign-invested enterprises (FDI). Over the last three decades, FDI has contributed significantly to the country’s industrial output, accounting for more than 50% of total production, with capital largely flowing into key sectors like manufacturing, machinery components, and textiles.
By 2023, FDI firms were exporting goods worth nearly $260 billion, making up over 73% of Việt Nam’s total exports. This ratio held steady into 2024 and early 2025, helping the nation achieve trade surpluses with several countries.
However, this export success masks a critical vulnerability: an overwhelming dependence on imported materials. A staggering 89% of FDI firms’ input materials are imported, with over half coming from China, while only about 11% are sourced from domestic companies.
This dependency is evident across key industries. In textiles and garments, the local content ratio is only around 47%. This creates a bottleneck in the supply chain and leaves the industry vulnerable to external shocks and market fluctuations. In electronics, it is even lower, estimated at just 5-10%. Around 90% of components are imported as well, with the majority coming from China. The auto industry fares no better, with a localization rate stuck at 7-10%—far short of the government’s 40-45% target—as high-value components like engines remain 80% imported.
In an interview with VTV, Trương Thị Chí Bình, General Secretary of the Vietnam Association for Supporting Industries, pointed to imbalanced government policy as the key reason for low domestic participation. According to Bình, state policy has focused on creating a market by signing 17 free trade agreements (FTAs) and attracting FDI, while neglecting to build up domestic production and supply capabilities.
“Those policies have never really been good,” she said. “Or if they existed, they weren’t effectively implemented.” This imbalance means FDI firms often only turn to Vietnamese suppliers when they have no other choice.
Vietnamese Firms Struggling Amid Global Standards
Despite strong export growth in recent years, many Vietnamese goods still fail to meet international standards on quality, safety, and traceability. This is particularly true in key sectors like agriculture, seafood, textiles, and electronics.
According to UN data, 5,483 Vietnamese export shipments were rejected worldwide between 2010 and 2020, with the U.S. accounting for 42% of rejections. More recently, the EU issued 130 food safety alerts for Vietnamese products in 2024—double the number from 2023—with the trend continuing into early 2025.
Specific examples of these failures are numerous. Germany and Austria, for instance, found unapproved imports of dried basil seeds and apple snail meat from Việt Nam. In other cases, Vietnamese tuna steak was found to contain excessive levels of ascorbic acid, far exceeding EU limits.
Some companies have also been caught misdeclaring ingredients, such as failing to disclose allergens in breaded shrimp products or labeling cashew powder containing peanuts as “organic,” prompting returns from European importers.
Beyond these quality control issues, Việt Nam has also faced more serious accusations of being a transshipment point for Chinese goods.
Since the U.S.-China trade war began, there have been growing claims that some companies relabel products from “Made in China” to “Made in Việt Nam” specifically to take advantage of lower tariffs in markets like the U.S., EU, and Japan. This practice further undermines the integrity of the “Made in Việt Nam” label.
The “Made in Việt Nam” Illusion
Việt Nam has long been known for its cheap labor and favorable incentives for foreign investors, but its role in the global supply chain remains mostly limited to low-skill, labor-intensive stages.
An estimated 65% of the Vietnamese workforce in FDI supply chains are involved in low-value tasks like final-stage assembly, packaging, or labeling. As the OECD has reported, Việt Nam’s integration into global value chains primarily takes the form of “backward linkages“: importing high-value inputs, assembling them, and exporting the final product. While the label might read “Made in Vietnam,” the intellectual property, technology, and key materials originate elsewhere.
This reality was acknowledged by General Secretary Tô Lâm in a January 2025 speech. He admitted that Việt Nam’s “impressive” export numbers may reflect a form of self-deception.
“Our R&D capacity remains weak… and we still depend heavily on external resources,” he said, before asking a series of pointed questions: “Have we really looked at the substance of our economy? How much value are we actually adding? If a shirt is designed, dyed, stitched, and buttoned by someone else, then what do we actually gain? Just cheap labor and environmental degradation?”
Lâm illustrated his point, he noted that in key industrial zones like Bắc Ninh, the majority of tier-1 suppliers are foreign firms, with Vietnamese companies mostly handling basic services like security, catering, or waste treatment. “I’m highlighting these issues so we can confront the reality of where our companies stand in global value chains, and in terms of international competitiveness,” he concluded.
This official admission of Việt Nam’s structural weaknesses and low localization rates brings the issue back to the new U.S. tariffs. The real challenge for Hà Nội now is whether its exports can genuinely qualify as “local-made” under Washington’s scrutiny.
Will the U.S. accept these goods at the 20% tariff, or will it view them as products of a global supply chain merely finished in Việt Nam and demand the full 40% rate?