Will Vietnam’s Tariff Deal with the US Make Its Exports More Competitive?

Vietnam has become the first Southeast Asian country to secure a trade deal with the US. While Vietnam will enjoy lower tariffs compared to what the US announced in April, this is not likely to render Vietnamese exports to the US more competitive compared to Southeast Asian rivals such as Malaysia and Thailand.

On 3 July, Washington announced that most of Vietnam’s exports will face a 20 per cent tariff, which is significantly lower than the 46 per cent announced by Washington in early April. In addition, a 40 per cent import tariff will apply to transshipments from third countries. In return, Vietnam has offered tariff-free access to US exports.

Four days later, on 7 July, the US announced the import tariffs that will apply to the exports from six other Southeast Asian countries. The tariffs for three of these countries were reduced, namely Cambodia (49 per cent to 36 per cent), Laos (48 per cent to 40 per cent) and Myanmar (44 per cent to 40 per cent). The tariffs for Indonesia (32 per cent) and Thailand (36 per cent) remained unchanged. Malaysia’s tariff was increased from 24 per cent to 25 per cent. 

Given the relatively lower tariffs on Vietnam’s exports to the US, the country’s exports could become more competitive than those of other countries in the region. Whether this is the case, however, will depend on the degree of similarity between Vietnam’s and these other countries’ exports to the US.

As Vietnam has become embedded in China’s global production network, Vietnamese exports manufactured with imported inputs from China are likely to be exposed to risks associated with the transshipment tariff. 

During the past two decades of relatively lower US import tariffs, Southeast Asian countries specialised in a few export market niches. For example, Thailand exported 3,947 types of product items to the US in 2023-4 (Table 1). The top 25 products accounted for 56 per cent of the total export value, largely under machinery and mechanical appliances and electronics. Malaysia’s export basket showed greater concentration (60 per cent), whereas Indonesia and Vietnam’s baskets were more diversified.

While the top exports from these four economies were largely dominated by two broad product categories — machinery and mechanical appliances, and electronics — the specific products within these categories varied across countries. In addition, each had its own competitive edge in other products such as processed foods and rubber tyres for Thailand; furniture and medical devices for Malaysia, garments and footwear for Vietnam and Indonesia.

Specialisation for Export

Table 1: The export baskets in the US of these four economies between 2023 and 2024

	Indonesia	Malaysia	Thailand	Vietnam
# export items	3214	3214	3497	3247
Share to total exports (%)
Top 25	48	60	56	50
Top 50	62	72	67	63
Top 100	76	82	77	75

The top export items to the US of Indonesia, Malaysia and Thailand did not overlap much with those exported from Vietnam (Table 2). In the three countries’ Top 25 export list, the number of overlapping products with Vietnam is at the single-digit level. However, these overlapping products in the Top 25 list account for fairly substantial shares of total exports to the US, especially for Malaysia (27.8 per cent) and Thailand (20.9 per cent). 

A more detailed analysis of the trade statistics shows that the overlap in the exports to the US between Malaysia, Thailand and Vietnam takes place in a few industries such as computer parts (for example, boards and memory modules), electronic converters, machines for the reception, conversion and transmission of voice, image and other data, and solar panel modules.

The World Customs Organization uses Harmonized System (HS) codes to classify products. These codes are used by more than 200 countries to determine customs tariffs and collect international trade statistics. Generally, six-digit HS codes are used; but some countries use eight- or 10-digit codes for greater precision.

If we examine the trade flows at a more granular level (eight-digit HS codes), the products exported by Malaysia and Thailand to the US are different from those by Vietnam. One example is the export of machines for the reception, conversion and transmission of voice, image and other data. Thailand specialises in exporting equipment for carrier wave or digital wireline systems. In contrast, the exports from Malaysia and Vietnam are focused on transmission equipment combined with receivers. Indonesian exports to the US are mainly concentrated in control and adaptor units.

Exports to US: Same But Different

Table 2: Exports to the US: Overlap Between Vietnam and Three Southeast Asian Countries

	Indonesia	Malaysia	Thailand
# of items
Top 25	6	7	5
Top 50	18	16	13
Top 100	44	33	30
% of total exports
Top 25	13.0	27.8	20.9
Top 50	24.6	33.5	40.9
Top 100	38.5	38.6	46.1
Rank Correlation with Vietnamese exports
Top 25	0.14	0.08	0.10
Top 50	0.19	0.08	0.12
Top 100	0.24	0.07	0.18

The relative competitiveness of Vietnam’s exports to the US will also be affected by the 40 per cent tariffs on transshipment, especially those from China. China’s share of Vietnam’s imports has risen in recent years, especially for parts and components (Figure 1). As Vietnam has become embedded in China’s global production network, Vietnamese exports manufactured with imported inputs from China are likely to be exposed to risks associated with the transshipment tariff. Diversifying away from China, if possible, will take time and incur costs.

Where China Looms

Figure 1: China’s Share in Vietnamese Imports, 2020 to 2024

* Note: Manufacturing = HS 28-99; Parts and components = parts and components are items under HS 84, 85 and 87 at the 6-digit level of product disaggregation, guided by parts under Broad Economic Categories (BEC).

Taken as a whole, the US-Vietnam tariff deal is not likely to enable Vietnam to increase its US market share at the expense of Indonesia, Malaysia and Thailand. A more immediate impact could be the transshipment tariff on Vietnam’s exports that contain Chinese inputs.

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