The Tariff Shock: Vietnam, the United States and the 2025 Trade Deal

Vietnam entered 2025 as the biggest single beneficiary of the US-China trade war and spent the year discovering what that status cost. The tariff shock of April, the frantic diplomacy of May and June, the deal of July and the framework of October form a single story about a small, open economy negotiating with the largest one in the world from a position of near-total exposure. This article reconstructs what happened, who decided what, what Vietnam actually conceded and what the outcome means for the companies that built their business on shipping from Hải Phòng to Los Angeles. It is part of the Vietnam Company Stories hub.

Why did the United States single out Vietnam with a 46 percent tariff?

Because of a formula, not a grievance. The “reciprocal” rates announced on 2 April 2025 were calculated from each country’s goods surplus with the United States divided by its exports there, then halved, and Vietnam’s exceptionally large surplus relative to its size produced one of the highest numbers on the chart.

The surplus itself was the product of the China Plus One relocation described in the sibling article on how Vietnam became the factory backup plan. US imports from Vietnam had roughly tripled between 2017 and 2024, to something over $135 billion, while US exports to Vietnam stayed near $13 billion, because Vietnam bought its inputs from China and Korea rather than America. The resulting deficit, third largest of any partner, had been flagged by the first Trump administration in 2019 and 2020, when Vietnam was briefly labelled a currency manipulator and investigated under Section 301.

There was also an explicit accusation. Senior US trade officials had said for years that Vietnam was a conduit for Chinese goods avoiding tariffs, and the April announcement was framed as closing that door. The 46 percent figure was therefore both a mechanical output and a political message: whatever Vietnam was doing to attract Chinese-owned factories, Washington intended to make it less profitable.

For Vietnam the exposure was extreme. Exports to the United States were equivalent to roughly a quarter of GDP, the highest ratio of any large Asian economy, and dominated by exactly the categories the tariff would hit: electronics, machinery, garments, footwear and furniture. Analysts at the time estimated that the full rate, sustained, could remove several percentage points from growth and threaten hundreds of thousands of factory jobs.

How did Hanoi respond in the first two weeks?

By offering everything it could think of, immediately. Two days after the announcement, on 4 April, General Secretary Tô Lâm telephoned President Trump, offered to cut Vietnamese tariffs on US goods to zero, and asked for the same in return. He was the first foreign leader to make such a call, and the White House said so publicly.

The offer was backed by concrete measures that had been prepared in advance. In late March, anticipating the announcement, the government had already issued a decree cutting import duties on liquefied natural gas, ethanol, cars, wood products, chicken, almonds and several other categories of interest to American exporters. It had approved a pilot licence for Starlink, a long-standing US ask, and signalled that it would buy more Boeing aircraft, LNG and agricultural goods. Deputy Prime Minister Hồ Đức Phớc was dispatched to Washington as special envoy within the week.

When the 90-day pause and 10 percent interim rate were announced on 9 April, Vietnam was positioned to be among the first countries into formal talks. The Ministry of Industry and Trade under Nguyễn Hồng Diên led the technical negotiation; the political direction came from Tô Lâm, who had consolidated authority as both Party General Secretary and, until late 2024, State President, and who treated the tariff as an existential matter for the economy.

The speed was itself a strategy. Vietnam had no leverage of the kind China possessed, no rare earths to withhold and no market the United States depended on. What it had was the ability to say yes faster and more completely than Thailand, Malaysia or Indonesia, and to demonstrate, through purchase commitments, that it could shrink the surplus on paper.

What did the July 2025 deal actually contain?

A 20 percent tariff on Vietnamese exports to the United States, a 40 percent tariff on goods judged to be transshipped, and zero Vietnamese tariffs on American goods. President Trump announced the terms on 2 July after a call with Tô Lâm; the Vietnamese readout was more cautious and did not initially confirm the numbers.

The asymmetry in how the two sides described the deal was telling. Washington presented it as a completed agreement; Hanoi described it as a “framework” with details still to be negotiated. The gap reflected an uncomfortable reality for the Vietnamese side, which had reportedly been negotiating around a rate of 10 to 15 percent and learned the final figure from the President’s social-media post. The executive order of 31 July, effective 7 August, confirmed 20 percent as the rate for Vietnam, alongside 19 percent for Thailand, Indonesia, Malaysia, the Philippines and Cambodia.

The 40 percent transshipment rate was the novel element. No definition was published in July, and the question of whether it would apply to goods with a high share of Chinese components or only to goods relabelled with a false origin dominated the following months. The technical issues, rules of origin and what counts as substantial transformation in Vietnamese customs law, are covered in Made in Vietnam?. The practical answer, as it emerged, was that the 40 percent rate targeted origin fraud rather than component content, which was a considerable relief to the electronics belt.

Vietnam’s side of the ledger was broader than tariffs. Commitments announced or reported during 2025 included Vietjet’s expanded Boeing order, LNG purchase agreements with US suppliers, roughly $2 to 3 billion of agricultural purchase memoranda signed by Vietnamese importers, and a general undertaking to remove non-tariff barriers on American goods. The airline order, which the carrier had strong commercial reasons to make anyway, is examined in the Vietjet profile.

What happened when the framework agreement was signed in October 2025?

The deal became text. On the margins of the ASEAN summit in Kuala Lumpur on 26 October, the two governments released a Joint Statement on a framework for reciprocal trade that confirmed the 20 percent rate, listed categories eligible for zero US tariffs, and set out Vietnam’s commitments to open its market and to police origin.

The US concessions were narrow but real. The framework identified product groups that could receive a zero rate, broadly the categories the United States does not produce or wants to import cheaply: certain natural resources, aircraft and parts, generic pharmaceuticals and some agricultural products. For the mass of Vietnamese exports, electronics, garments, footwear and furniture, the 20 percent rate remained. Sector-specific tariffs on steel, aluminium and, potentially, semiconductors under separate legal authorities were unaffected.

Vietnam’s commitments were extensive. It undertook to remove tariffs on essentially all US industrial and agricultural goods, to address a list of non-tariff barriers covering everything from vehicle standards to digital trade and pharmaceutical registration, to strengthen enforcement against origin fraud and to cooperate on export controls and investment screening. It also agreed to purchase commitments in aircraft, energy and agriculture that were framed as private-sector decisions but had been negotiated by the state.

The framework was, in effect, a comprehensive trade agreement negotiated in six months under the threat of a 46 percent tariff, and it gave the United States much of what it had failed to obtain through the Trans-Pacific Partnership a decade earlier. Vietnam had spent years extracting concessions from the EU and CPTPP partners in exchange for market opening; the history of those negotiations is told in Sixteen Trade Deals. With the United States, in 2025, it gave the opening away to keep what it already had.

How did the courts change the picture in 2026?

They removed the legal foundation but not the policy. The reciprocal tariffs had been imposed under the International Emergency Economic Powers Act, a statute that had never before been used for tariffs, and litigation brought by importers and states reached the US Supreme Court in late 2025. The court’s ruling in early 2026 held that the Act did not authorise the tariffs.

The administration’s response was to rebuild the same structure on different statutes. A temporary global tariff under Section 122 of the Trade Act, which permits up to 15 percent for 150 days to address balance-of-payments problems, was imposed almost immediately, and sector investigations under Section 232 and country investigations under Section 301 were accelerated to provide longer-lasting authority. For Vietnamese exporters the practical rate in the first half of 2026 was therefore somewhat lower than 20 percent on many goods, but the direction of travel was unchanged and refunds of the tariffs already paid became a separate legal saga.

The framework agreement survived the ruling because it was a political document rather than a tariff order. Vietnam did not withdraw its commitments, partly because it could not be sure what would replace the struck-down tariffs and partly because the concessions had already been written into Vietnamese decrees. The lesson many Vietnamese officials drew was that legal victories in Washington do not change Washington’s intent, and that the surplus itself, rather than any particular tariff, was the problem to manage.

At the time of writing the situation remains fluid. Section 122 authority is time-limited, the Section 301 investigations have not all concluded, and the possibility of a renewed country-specific tariff on Vietnam under a more durable legal basis is real. Companies planning capacity in Vietnam have generally assumed a rate in the range of 15 to 20 percent as the base case.

Which Vietnamese industries were hit hardest, and which escaped?

Garments, footwear, furniture and seafood were most exposed because their margins are thin and their alternative markets limited; electronics escaped relatively lightly because smartphones, computers and semiconductors were exempted from the reciprocal tariff in April and remained subject to separate treatment thereafter.

The electronics exemption was decisive for the national numbers. Samsung’s phones and the Apple belt’s AirPods, MacBooks and iPads make up roughly a third of Vietnamese exports to the United States, and their exclusion from the reciprocal rate, pending a Section 232 investigation into semiconductors, meant that the effective average tariff on Vietnamese goods was well below the headline throughout 2025. It also meant that the companies with the most political weight in Hanoi were not the ones demanding concessions.

The labour-intensive sectors bore the cost. Garment and footwear exporters, whose economics are examined in Vietnam’s Garment Machine, faced a 20 percent tariff on top of existing duties of 10 to 30 percent, and their American buyers, Nike, Gap, Target and the rest, pushed to share or shift the burden. Furniture makers in Bình Dương, many Chinese-owned, faced both the tariff and a heightened risk of transshipment findings. Shrimp and catfish exporters had lived with anti-dumping duties for two decades and treated the new rate as one more.

The paradox of 2025 was that Vietnamese exports to the United States grew strongly anyway, by roughly a fifth, as American importers front-loaded orders ahead of each deadline. The full-year figures flattered an economy that had spent the year in crisis mode, and the true cost of the new rate will only be visible in 2026 and 2027 order books.

What does the tariff shock mean for founders, investors and operators?

That US market access is now a negotiated privilege rather than a structural given, and that every business plan built on Vietnamese origin needs a tariff scenario, a content audit and a second market. The firms that navigated 2025 best had all three before April.

For founders and exporters, the operational lesson is documentation. The 40 percent transshipment rate and the framework’s enforcement commitments mean that Vietnamese customs, under pressure from Washington, has become far stricter about certificates of origin, and US Customs has expanded its verification work. A supplier that can prove where every component came from and what was done to it in Vietnam is a lower-risk counterparty, and buyers are beginning to price that.

For investors, the shock revealed which listed companies actually depend on the US market and which merely benefit from the FDI it attracts. Port and logistics operators, industrial-park developers and the banks that finance exporters all sold off in April and recovered by year-end; the garment and seafood names did not fully recover. The episode also confirmed that Vietnamese policy responds to external pressure with concessions rather than retaliation, which is reassuring for foreign investors and less so for domestic producers now facing tariff-free American competition.

For operators of multinational plants, the calculation is comparative rather than absolute. A 20 percent rate on Vietnamese goods is painful, but if China faces 30 percent or more and the rest of Southeast Asia 19 percent, Vietnam remains competitive for the assembly step, and the 2025 deal preserved that relative position. What it did not preserve was the assumption that relocating from China to Vietnam solves the tariff problem. It reduces it, at a price that is now renegotiated every few years.

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