By Jessica Huang
 |
| Cover Image Attribute: Ho Chi Minh City's skyline. Image by D Mz from Pixabay |
Vietnam's economy expanded by 8.22 percent in the third quarter of 2025, marking the strongest quarterly performance since 2011, apart from the rebound in 2022 following the COVID-19 pandemic. This figure, announced by Finance Minister Nguyen Van Thang, comes even as a 20 percent tariff on most Vietnamese exports to the United States took effect on August 7, midway through the period. Total trade turnover exceeded $680 billion in the first nine months of the year, a 17 percent rise from the prior year, yielding a surplus of $16.8 billion. Such numbers capture the momentum that has defined Vietnam's trajectory for decades, yet they also mask accumulating pressures that threaten to erode the foundations of this progress. As Prime Minister Pham Minh Chinh observed last month, exports "will face difficulties and challenges ... due to strategic competition, conflicts and the U.S.'s 'reciprocal' tariff policies." With GDP growth over the first nine months at 7.84 percent and a full-year target of 8.3 to 8.5 percent, Vietnam presses ahead, outpacing the World Bank's 6.6 percent forecast and the International Monetary Fund's 6.5 percent estimate. But this pursuit occurs against a backdrop of depreciating currency, dwindling foreign reserves below three months of import cover, and escalating natural disasters, including eight storms that inflicted 16.5 trillion dong ($625.5 million) in damage from Typhoon Bualoi alone.
The story of Vietnam's economic revival begins in the shadow of devastation. In the 1980s, the nation teetered on collapse after conflicts like the Cambodian-Vietnamese War and the Sino-Vietnamese conflicts spanning 1979 to 1991, compounded by a centrally planned system that mirrored the Soviet model and left the economy mired in subsistence agriculture, isolation, and poverty. Gross domestic product languished, with rice farming dominating output and foreign investment scarce. By the early 1980s, leaders confronted the perils of this path, prompting a pivot that reshaped the country's fortunes. The Đổi Mới reforms of 1986 dismantled state controls, ushering in a market-oriented system, export strategies, and openness to foreign trade. This shift, implemented over three decades, fostered industrialization, small businesses, foreign-invested enterprises, skilled labor, and surging exports. Annual inflation initially soared to 100 percent, testing resolve, but persistence paid off. As one analysis notes, even before Đổi Mới, informal markets had sprouted from necessity, yet the formal reforms provided the structure for expansion.
A pivotal external catalyst arrived in the 1990s with United States policy changes. President Bill Clinton's 1994 lifting of the trade embargo acknowledged Vietnam's opening and normalized ties with its former adversary. The bilateral trade agreement of December 2001 extended most-favored-nation status, propelling exports to the U.S. and drawing investment. Today, the U.S. stands as Vietnam's largest export market and a prime source of foreign direct investment, with cumulative U.S. commitments reaching $12 billion across 1,374 projects. In the first four months of 2024, foreign direct investment reached $6.28 billion, a 7.4 percent increase, with 80 percent targeting areas that boast superior infrastructure, human resources, and efficient local administration. Quality improved too, emphasizing high-tech and environmentally sound manufacturing, which captured 78.5 percent of utilization. Exports climbed 15 percent year-on-year to $123.64 billion, imports 15.4 percent to $115.24 billion, yielding a $8.4 billion surplus. Bilateral trade volume reached $149.6 billion in 2024, a 20.4 percent increase, with Vietnam as the U.S.'s sixth-largest import source at $136.6 billion. Top U.S. imports included electric machinery, furniture, footwear, and apparel, while exports to Vietnam—$13.1 billion—featured machinery, plastics, and agricultural products.
This integration extended beyond the U.S. Vietnam joined the World Trade Organization in 2007 and forged free trade agreements like the EU-Vietnam pact, hailed as a "new-generation FTA" for its depth. Membership in the Association of Southeast Asian Nations and others bolstered its appeal. Strategic location near global supply chains, stable sociopolitical conditions, and infrastructure investments in transport and digital realms drew investors seeking China alternatives amid rising labor costs there. Manufacturing boomed in textiles, electronics, footwear, and seafood, leveraging skilled labor and agreements. As China's dynamics shifted, Vietnam positioned itself as a reliable hub, with ports and networks enhancing export reach. The U.S.-Vietnam Comprehensive Strategic Partnership, elevated in 2023, deepened collaboration in investment, research, high-tech, transportation, education, telecommunications, and energy. Deals like General Electric's 2022 power plant equipment for PetroVietnam exemplify this. Major U.S. firms—Apple, Intel, Qualcomm, Nike, and others—relocated production, spurred by the U.S.-China trade war, generating thousands of jobs. The American Chamber of Commerce in Vietnam, founded in 1994, and a 2.4 million-strong Vietnamese diaspora further knit economic bonds.
Tourism emerged as another pillar, contributing 7 percent to GDP and sustaining nearly six million jobs. In the first quarter of 2024, 4.6 million foreign visitors arrived, a 72 percent jump, drawn by cultural heritage, affordability, and social media buzz. Domestic travel quadrupled over the past decade. By late 2024, GDP neared $468.5 billion, with 6.1 percent growth surpassing earlier 5.8 percent projections. The middle class swelled, spurring consumption in retail, real estate, and services. Vietnam ranked 26th globally in GDP by purchasing power parity, with trade volume among the top 20 at $730 billion in 2022 and $681 billion in 2023. Gross national product has multiplied 50-fold since 1986. Poverty plunged from 80 percent in 1993 to 5 percent in 2020, earning a "moderately free" status in the 2024 Economic Freedom Report, 59th out of 179 nations—up 12 places. Policies emphasize free trade, a 34 percent debt-to-GDP ratio, 21 percent public spending to GDP, and investor-friendly climates, balancing partners amid geopolitical flux.
Vietnam's model blends socialist orientation with capitalist elements, featuring low public spending and dynamism. The 13th National Congress of the Communist Party in 2021 envisioned high-income status by 2045, naming science, technology, and innovation as core drivers. The digital economy, at 18.3 percent of GDP in 2024, grew over 20 percent annually—the region's fastest—fueled by 73,788 firms generating $158 billion in revenue, including $11.5 billion abroad and $133.2 billion in hardware exports. E-commerce ranks among the world's top ten. The Global Innovation Index placed Vietnam 44th out of 133 in 2024, lauding potential despite low research and development at 0.43 percent of GDP—far below Asia's leaders or the 2.62 percent global average. Strengths appear in outputs like high-tech exports, but human capital and institutions lag. Electrical and electronics exports hit $126.5 billion in 2024, yet domestic value-added stays slim, with locals mastering few design, standards, or intellectual property stages. The semiconductor sector, vital to digital growth, focuses on assembly, testing, and packaging, where foreign direct investment from Amkor, Hana Micron, and Intel aids expansion. A 2024 report forecasts Vietnam's global ATP share rising from 1 percent in 2022 to 8-9 percent by 2032, contingent on technology transfer.
Foreign-invested enterprises drive 72 percent of 2025 export turnover in electronics, textiles, and footwear, limiting domestic firms' global value chain roles. This reliance exposes vulnerabilities to disruptions and geopolitical risks, curbing technology transfer, innovation, and inclusive growth. The private sector, essential for high-income transition, stalls: 97 percent of nearly one million registered firms are micro or small, leaving a "missing middle" of medium enterprises. The informal sector grows but yields low productivity and scant protection. Private and informal players encounter regulatory hurdles, weak research capacity, finance shortages, land access issues, and skilled labor gaps, exacerbated by state-owned enterprise dominance. Reforms prioritize private development, yet exclude state firms from scrutiny. Financial systems, beyond banks, feature immature bonds, equity, and insurance; life insurance is under 1.5 percent of GDP, private pensions state-dominated, and mutual funds nascent. The stock market, a frontier classification, restricts foreign access. A 2018-22 corporate bond surge collapsed in 2023 amid lax regulation and absent credit ratings. Microfinance lags peers, hindering underserved capital access.
Bank credit, once surging 36 percent annually from 2007-2010 and hitting 53.8 percent in 2007, sparked instability: inflation peaked at 23 percent in 2008 and 18.7 percent in 2011, with non-performing loans at 4.9-8.8 percent in 2012. The 2013 Vietnam Asset Management Company tackled this, yet risks persist. Removing credit quotas and reserve requirements in 2025 may spur bad debt and banking strains. The dong depreciates despite a softer U.S. dollar; monetary expansion inflates property and equity bubbles. State budgets lean on volatile land taxes, fees, and excises, with reforms curbing expenditures but demanding reduced economic control. The Incremental Capital-Output Ratio climbed from 7.6 in 2016-20 to 8.5 in 2021-24, showing capital's waning productivity and a rift between income gains and sustainability. Environmental decay and urban woes compound this.
The U.S. tariffs crystallize these tensions. President Donald Trump's July 31, 2025, executive order set a 20 percent rate on Vietnamese imports—up from 10 percent in April but below an initial 46 percent threat—effective August 7, alongside 40 percent on transshipments evading duties. Annex I applies reciprocal rates: 15 percent for surplus exporters, 10 percent where the U.S. leads. Annex II targets products, exempting pharmaceuticals, semiconductors, critical minerals, energy, lumber, and copper. Steel and aluminum face 25 percent, autos 25 percent from April 3. Transshipments draw fines under 19 U.S. Code § 1592, with no penalty mitigation. Vietnam's 5.1 percent trade-weighted tariff versus the U.S.'s 2.2 percent, plus past currency undervaluation labels and timber probes, fueled scrutiny. The 46 percent stemmed from dividing the U.S. deficit by imports, per 2024 data. Negotiations, spanning two months, yielded claims of mutual wins; Trump touted zero-tariff U.S. access, including SUVs, while Vietnam's General Secretary To Lam sought market economy recognition and high-tech export easing.
A United Nations Development Programme report warns duties could cut U.S.-bound exports by one-fifth, hitting Vietnam hardest in Southeast Asia. Exports to September 15 rose 15.8 percent to $325.3 billion, with 12 percent annual growth eyed, but transshipment risks loom—China's exports to Vietnam grew 18.7 percent CAGR from 2018-2024, mirroring U.S. import surges from Vietnam at 15.7 percent. Electrical machinery imports from China spiked 53.5 percent in May 2025. Country-of-origin marking, per U.S. Customs and Border Protection, demands legibility and ties to substantial transformation for origin shifts. Exemptions cover goods in transit before August 7, entered by October 5. Vietnam pledges crackdowns on copyright violations and origin issues, U.S. concerns. Chinh eyes deals with Mercosur and Gulf states by year-end, plus U.S. talks. Dragon Capital sees the 20 percent as bolstering competitiveness versus Indonesia's 19 percent or China's 55 percent, averting 1.4-2 percent GDP shave and flight risks. Vietnam's edges—China proximity, infrastructure, incentives, 20 FTAs—persist.
Yet impacts ripple. Textiles, footwear, furniture face margin squeezes, order drops, job losses; diversification to Europe or Asia meets competition and logistics hurdles. U.S. importers pass costs, hiking consumer prices—like 8 percent sweater rises from 10 percent tariffs, 35 percent from 46 percent. Steel exports, fifth-largest to U.S. at 1.2 million tons ($1.13 billion) in 2024, grew 143.4 percent despite 25 percent duties; aluminum at 35,593 tons ($142.9 million) fell 1.7 percent, now vulnerable to 25 percent. Auto parts, $1.1 billion, comprise one-fifth of Vietnam's total but dwarf global flows. Transshipments, targeting minimal Chinese processing, could slash 25 percent of U.S. exports long-term, risking 2 percent GDP, per Bloomberg, if China retaliates. No origin threshold exists; near-zero tolerance may flag 1 percent Chinese content.
Technology offers a counterweight, but demands realism. Policymakers must link tech to institutional reform, human resources, and industry bases, avoiding overreliance where frameworks falter. Output strengths mask input gaps; R&D fragmentation hampers commercialization, per Hanoi Law University lecturers. The 50,000 semiconductor engineers goal by 2030 needs standardized programs, hands-on training, and expert attraction. Regional models instruct: South Korea's 5 percent GDP R&D in 2023, $23.2 billion semiconductor push, and mega cluster by 2047; Taiwan's $30.63 billion spend, 78.1 percent electronics-driven, yielding TSMC's 90 percent advanced chip share via industry-academia ties; Singapore's 1.8 percent GDP, $25 billion for transfer and innovation. Vietnam should deepen knowledge via prioritized missions, public-private funding, credit incentives; focus ATP with FDI-linked transfers; forge government-university-industry links for training; disaggregate digital contributions for inclusive policies bridging urban-rural divides.
Broader recalibration beckons. Growth, investment-centric and export-led since lower-middle-income attainment in 2009, confronts a development trap of low productivity and environmental toll. High-income pursuit merits scrutiny if it yields instability. A resilient domestic economy, generating internal demand and supply via dynamic private sectors, must complement external strategies. Institutional shifts demand curbing state sway, fostering medium firms, enhancing finance, and ensuring social safeguards. Bamboo diplomacy—solid roots, flexible branches—sustains seven comprehensive partnerships, hedging via diversification to the EU, CPTPP, ASEAN, Japan, and South Korea. Amid multipolar strains, U.S. ties, rooted in history yet pragmatic, balance China's legacies. Vietnam's ascent, from war-torn agrarian base to dynamic force, stems from reforms, integration, and adaptability. Sustaining it requires addressing frailties head-on, forging pathways where technology, trade, and domestic vitality converge without excess.
IndraStra Global is now available on
Apple News, Google News, Feedly, Flipboard, and WhatsApp Channel
Apple News, Google News, Feedly, Flipboard, and WhatsApp Channel
DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of IndraStra Global.
COPYRIGHT: This article is published under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. https://creativecommons.org/licenses/by-nc-nd/4.0/
REPUBLISH: Republish our articles online or in print for free if you follow these guidelines. https://www.indrastra.com/p/republish-us.html
.jpg)
