The textile and garment industry is shifting toward higher-value, greener growth

Export growth amid rising challenges

A report by the Vietnam Textile and Apparel Association (VITAS) shows that the industry's exports continued to grow in the first half of 2026 despite ongoing challenges in global markets. Export revenue is estimated at US$22.2 billion, up 1.7% year on year, while the trade surplus reached nearly US$10 billion. In June alone, exports totaled US$4.22 billion, up 10.9% from the previous month, indicating stronger export activity as the industry entered the peak season for year-end orders.

By product category, growth was driven mainly by raw materials and supporting materials, including fibers, fabrics, garment accessories, and nonwoven fabrics. Meanwhile, garment exports, the industry's largest export segment, slipped 0.32% to US$17.253 billion. This reflects the continued slow recovery in demand across key export markets, affecting the industry's highest value-added product group.

Export markets continued to show mixed trends. During the first five months of 2026, the United States (U.S.) remained Vietnam's largest textile and garment export market, with exports reaching US$6.81 billion, up 1.3% and accounting for about 45% of the industry's total exports. Notably, although total U.S. textile and garment imports fell 12.06% in the first four months of the year, Vietnam's market share remained between 15.7% and 18.4%, while the shares of competitors such as China, India, and Bangladesh declined. Meanwhile, exports to the European Union increased 8.8%, while shipments to Japan and South Korea fell 6.2% and 8.9%, respectively.

Although export revenue continued to grow, VITAS said the industry still faced thin profit margins because export prices declined while input costs increased. Specifically, the average export price to the U.S. fell 4.92%, while the cost of imported raw materials and supporting materials rose 2.4% in the first six months of the year. As a result, the industry's value-added ratio declined from 48.53% to 47.07%, showing that improving production efficiency remains a major challenge for textile and garment companies.

Pressure from trade policies and green standards

In the second half of 2026, the global economy and trade are expected to continue growing at a modest pace of about 2.5% to 3.1%, amid persistent inflation, high energy costs, and ongoing geopolitical uncertainty in the Middle East and the Strait of Hormuz. According to the World Trade Organization (WTO), growth in global merchandise trade is expected to slow. Against this backdrop, delivery times, rules of origin, carbon emissions reduction, and compliance with environmental, social, and governance (ESG) standards are becoming increasingly important for textile and garment companies seeking to expand exports and participate in global supply chains.

For Vietnamese textile and garment companies, changes in trade policies in major export markets remain a key issue to monitor. Among them, the Office of the United States Trade Representative's (USTR) Section 301 investigation into forced labor, excess production capacity, and intellectual property issues could affect exports in the coming period. According to VITAS, the investigation could lead the U.S. to consider imposing additional tariffs of 10% to 12.5%, depending on the economy, raising tariffs on apparel products to about 19.4% to 22.4% for 54 economies, including Vietnam. VITAS also said the U.S. is proposing a mechanism that would allow lower tariffs on products made with cotton or fabric imported from the U.S. market. However, the mechanism would also require greater supply chain transparency and stricter traceability of raw material origins.

Beyond the U.S. market, the European Union is accelerating the implementation of new regulations, including the Digital Product Passport, Ecodesign requirements, and the Carbon Border Adjustment Mechanism (CBAM). Meanwhile, Japan and South Korea continue to tighten requirements related to the circular economy and chemical controls for textile and garment products. These changes are expected to increase compliance requirements for exporters in the coming period.

At home, Vietnam's textile and garment industry still relies on imports for about 60% to 70% of its raw materials and supporting materials. China alone accounted for 60.2% of total imports, worth US$5.53 billion in the first four months of 2026. This level of dependence makes it difficult for many companies to meet rules of origin, such as the "yarn-forward" and "fabric-forward" requirements, needed to qualify for preferential tariffs under new-generation free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). Limited access to capital and shortages of high-quality workers continue to slow the green transition and automation efforts of many companies, particularly small and medium-sized enterprises.

Transforming growth model

In response to changing market demands, VITAS has identified transforming the industry's growth model as one of its top priorities in the coming period. Vu Duc Giang, Chairman of VITAS, said: "Vietnam's textile and garment industry has limited room for further growth based on scale alone. The next stage requires higher productivity, greater value added, stronger self-sufficiency in raw materials, more diversified markets, and faster digital and green transformation. That is why VITAS is repositioning its operating model around the industry's strategic pillars."

Accordingly, VITAS has approved the establishment of four specialized committees: the Fashion Committee, the International Business Committee, the Sustainable Development Committee, and the Technology, Innovation, and Digital Transformation Committee. Operating on the principles of voluntary participation, cooperation, and non-profit knowledge sharing, the committees are expected to begin pilot operations in the third quarter of 2026 to strengthen industry linkages and support companies in transforming their production and business models. VITAS also approved seven foundational documents and a Code of Professional Ethics for the textile and garment industry to strengthen the governance framework for its members during the new term.

VITAS aims to achieve textile and garment exports of about US$48 billion in 2026. To reach this target, exports in the second half of the year must average more than US$4.3 billion per month under the optimistic scenario. According to VITAS, key solutions include shifting from cut-make-trim (CMT) production to higher value-added models such as FOB, ODM, and OBM. The industry is also encouraged to better tap the domestic market, estimated at US$5.5 billion and supported by a population of more than 100 million, to diversify sales channels and reduce dependence on fluctuations in export markets.

In addition to business initiatives, VITAS has urged the Government and relevant ministries to continue improving policies and mechanisms to strengthen the industry's competitiveness. Its recommendations include attracting high-quality FDI into textile production, dyeing, and finishing; studying mechanisms to exempt or defer value-added tax on domestically sourced raw materials used in export manufacturing; continuing administrative reforms and improving coordination among investment, environmental, and fire safety procedures; and reviewing traceability regulations to reduce compliance costs for businesses. VITAS also called for accelerating negotiations on the ASEAN-Canada Free Trade Agreement and expanding discussions with the U.S. on the Section 301 investigation.