US Exports Propel Vietnam’s Economic Growth

The extensive tariffs imposed by US President Donald Trump are now in effect, impacting most corners of the globe, with South East Asia facing significant repercussions, especially apart from China.

Countries like Vietnam and Cambodia are at the forefront, facing tariffs as high as 46% and 49% respectively, while Thailand, Indonesia, and Malaysia experience lower rates at 36%, 32%, and 24% respectively. The Philippines is subject to a 17% tariff and Singapore’s is set at 10%.

This situation poses a formidable challenge for a region that is heavily reliant on exports, with its economic growth trajectory over the past three decades largely attributed to its ability to trade successfully with global partners, particularly the US.

The US accounts for 23% of Vietnam’s GDP and a staggering 67% of Cambodia’s GDP through exports.

The growth potential witnessed in these nations is now threatened by the harsh measures enacted in Washington.

Should these tariffs remain unchanged, their long-term consequences will differ across countries but will undeniably create significant hurdles for the governments of Vietnam, Thailand, and Cambodia in particular.

Vietnam’s strategy of “bamboo diplomacy”, which emphasizes maintaining amicable relations with both China and the US, will now face its testing grounds.

Under the guidance of the new Communist Party Secretary-General To Lam, Vietnam has initiated an ambitious roadmap to nurture a knowledge-and-tech-based upper-income economy by 2045, aiming for annual growth rates surpassing 8%.

Boosting exports to the US, its largest market, is pivotal to achieving this vision.

This priority was also a crucial factor behind Vietnam’s elevation to a Comprehensive Strategic Partnership with the US in 2023.

The Communist Party, which has little tolerance for dissent and lacks organized political opposition, relies on successful economic performance for maintaining its legitimacy. Many economists view these ambitious economic goals as increasingly difficult to fulfill in the current environment.

In contrast to Vietnam, Thailand’s dependency on US exports is lower, accounting for less than 10% of its GDP, yet the Thai economy has been struggling significantly over the past decade. The Thai government is seeking avenues to revitalize economic growth, recently attempting unsuccessfully to legalize gambling, making the tariffs an additional economic setback it can hardly afford.

For Cambodia, the tariffs represent an even greater political risk regionally.

The administration led by Hun Manet mirrors the authoritative tendencies of his predecessor Hun Sen, whom he succeeded two years prior, yet it finds itself in a precarious position.

Maintaining the Hun family’s grip on power has necessitated granting economic favors, like monopolies or land concessions, to competing clans within Cambodia. This strategy has led to an excess of real estate developments that are struggling to sell and an accumulation of grievances tied to land appropriations.

The garment industry, a critical social safety net that provides stable incomes to Cambodia’s impoverished populace, has employed around 750,000 workers, yet thousands of these jobs now stand at risk due to President Trump’s tariff measures.

Differing from China, which has retaliated with its own tariffs, Southeast Asian governments advocate for negotiation rather than retaliation amidst this crisis.

Vietnam is sending Deputy Prime Minister Ho Duc Pho to Washington to advocate for the nation’s interests, even offering to eliminate all tariffs on US goods. Thailand is also considering sending its finance minister for similar discussions while proposing to decrease its tariffs and increase purchases of American products, such as food and aircraft.

Although Malaysian Prime Minister Anwar Ibrahim is also making the journey to Washington, Malaysia is less impacted since exports to the US only make up 11% of its total.

Nonetheless, the Trump administration appears disinclined to compromise.

Peter Navarro, a senior advisor on trade and manufacturing to President Trump, expressed that Vietnam’s offer of zero tariffs wouldn’t suffice in addressing the considerable trade deficits where Vietnam exports $15 of goods to the US for every $1 it imports.

He also claimed that Vietnam maintains numerous non-tariff barriers to US imports, arguing that one-third of Vietnamese exports to the US are actually Chinese products routed through Vietnam.

While it’s challenging to determine the true volume of Vietnamese exports designed to skirt US tariffs on China, distinct trade studies suggest that the actual figure lies between 7% and 16%, rather than one-third.

Similar to Vietnam, the Cambodian government has made a plea to the US for a delay on the tariffs as they pursue negotiations.

The American Chamber of Commerce locally has advocated for the elimination of the 49% tariffs, emphasizing the detrimental impact on Cambodia’s garment industry, the nation’s largest employer. They argue that no level of tariff, regardless of how steep, will reinstate clothing and footwear manufacturing jobs back in the US.

One particularly extreme tariff rate is the applied 44% on Myanmar, a nation entrenched in civil conflict, which cannot feasibly import more US products.

US exports contribute minimally to Myanmar’s GDP, representing less than 1%.

However, as with Cambodia, the garment industry remains one of the few sectors that provides consistent earnings for impoverished urban families in Myanmar.

In a glaring contradiction, Trump has historically been a well-regarded figure in this region.

His tough and transactional foreign policy has earned him admiration in Vietnam, while Cambodia’s former strongman Hun Sen, still a prominent figure behind the scenes, has long sought to build a strong rapport with the US president, often posting selfies from their first meeting in 2017.

Just last month, Cambodia lauded Trump for halting US media networks such as Voice of America and Radio Free Europe, which frequently disseminated perspectives from Cambodian dissidents.

Now, Cambodia, like many of its neighbors, finds itself pleading with him to alleviate their burdensome tariffs.