Việt Nam was Asia’s biggest beneficiary of the first Trump administration. — Photo courtesy of CNN

HCM CITY - The second Trump administration will probably not be as beneficial to Việt Nam’s economy as the first one was, but the risk that Trump’s tariff policies will derail Việt Nam’s healthy economic trajectory is minimal – in sharp contrast to claims made in some articles published since his election.

Michael Kokalari, a chartered financial analyst and chief economist at VinaCapital, stated so in his recent report.

He highlighted that Trump’s appointment of Scott Bessent as Treasury Secretary would benefit Việt Nam. Bessent had repeatedly referred to Trump’s tariff proposals as “maximalist” positions that would likely be watered down in negotiations.

“More importantly for Việt Nam, Bessent favours considering US geopolitical objectives when determining tariff levels on individual countries.”

Kokalari noted that the details of how exactly this could function as well as other specifics of Trump’s likely tariff strategy were outlined in a white paper titled “A User’s Guide to Restructuring the Global Trading System” written by a senior economic policy advisor in Trump’s first administration, who is reportedly close to Bessent.

That 40-page report mentions considering geopolitical factors to determine tariffs on individual countries over 20 times. In short, the bipartisan belief in Việt Nam’s usefulness to the US to help it achieve its geopolitical objectives essentially ensures that Việt Nam will not be singled out for overly harsh tariff treatment by Trump, according to the analyst.

Trump’s re-election prompted several international business publications to warn that his tariff policies could drastically derail Việt Nam’s economy.

Articles with titles such as, “A Rough Four Years Await Việt Nam” that claims that “Việt Nam’s economic growth – which was 5 per cent last year – could shed up to 4 percentage points” were, in VinaCapital’s view, extremely pessimistic because the assertions were not accompanied with any evidence to explain why Việt Nam would suffer such a severe decline in GDP.

One article published by a prominent newspaper asserted that South Korean firms might delay or reduce their investments in Việt Nam if Trump were to proceed with his plans to put 10-20 per cent blanket tariffs on all countries (ex-China).

“But investments by major Korean companies continue to flow into Việt Nam because factory wages in Korea are nearly 10x those in Việt Nam, and Korea is ageing at a faster pace than Japan did at the peak of its demographic decline.

“Companies are unlikely to change plans to produce in Việt Nam if exports from Korea and Việt Nam to the US were to suffer from the same tariff burdens, and it is possible that Việt Nam may even get favourable tariff treatment vis-à-vis its Asia exporting peers under Trump,” he pointed out.

In his previous report titled “Trump’s Election Should Have Little Impact on Việt Nam,” Kokalari explained how Việt Nam could be helpful to wean the US off China-made goods which cost too much to manufacture at home.

An article in Forbes quoted a supply chain expert who said, “If previously it was made in China, now it’s going to be made in Vietnam” because “production is not coming back to America.” Another article quoted the CEO of Black and Decker, who said his company is unlikely to move manufacturing jobs back to the US because “it’s just not cost effective.”

Understanding Trump’s objectives and strategy

Kokalari underscored that the bare bones essence of Trump’s likely tariff strategy is using tariffs to compel China, Germany, etc., to build factories in the US, and compel widespread cooperation for a “Plaza Accord 2.0” to depreciate the USD by approximately 20 per cent.

The latter would encourage the re-shoring of jobs to the US and would be good for Việt Nam because the State Bank of Vietnam has loosely pegged the VND exchange rate to the US dollar, he said.

However, Kokalari warned of certain risks for Việt Nam’s stock market (and all emerging stock markets), including the potential for further appreciation of the US dollar, which has already caused the VNĐ to depreciate nearly 5 per cent year-to-date. If the dollar continues to strengthen, it could prompt the State Bank of Vietnam to tighten monetary policy, raising interest rates to support the đồng.

Another concern is Việt Nam’s US$100 billion trade surplus with the US, the third largest after Mexico and Canada. To put that figure in context, the US Treasury Department has three criteria for a country to be considered a “Currency Manipulator”, one of which is persistent trade surpluses of over $30 billion.

To mitigate risks, he said Việt Nam must take proactive steps to reduce this trade surplus by increasing imports from the US, such as liquefied natural gas and aircraft jet engines.