Vietnam’s Strategic Approach to US Tariffs: Supporting Industries in Focus

Amid rising US tariffs on key trading partners, Vietnam’s supporting industries are emerging as a strategic alternative for global manufacturers. This article examines how Vietnam’s supporting industries are poised to capitalize on global shifts, presenting new opportunities for investors.

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Within the first half of 2025, rising geopolitical tensions and intensified strategic competition among major powers, exacerbated by the US announcement of high tariff rates on its trading partners, present significant challenges in doing business in ASEAN countries. Nonetheless, Vietnam is poised to turn these challenges into a catalyst for reform, paving the way for an unprecedentedly open and dynamic trading environment in the years ahead.

This article examines how investors can capitalize on opportunities in one of Vietnam’s most pivotal sectors: supporting industries.

See also: US Tariffs on Vietnamese Exports: Analyzing the New Framework

A snapshot of Vietnam’s supporting industries landscape

Supporting industries (SI) comprise sectors that supply raw materials, components, spare parts, sub-assemblies, and essential production support services such as tooling, mold-making, testing, and packaging. While manufacturers in supporting industries – especially in the mechanical engineering sector – are not the end-product producers, they play a critical role in enabling core industries, such as the automotive and electronics sectors, to operate efficiently and competitively.

Vietnam’s supporting industries comprise over 6,000 enterprises, with more than 5,000 supporting industrial products, as per Vietnam Industry Agency (VIA).

Annual Number of Enterprises in Vietnam’s Supporting Industries, 2019 – 2025

Source: VIA
*Updated until July 2025.

Number of Enterprises in Vietnam’s Supporting Industries, by type, 2019 – 2025

Source: VIA
*Updated until July 2025.

While Vietnamese firms seem to have outnumbered foreign enterprises in the supporting industries in recent years, they currently meet only 10 percent of domestic demand for materials and components. When focusing solely on Vietnamese companies, the localization rate in the supporting industries is just 15.7 percent. This underscores the significant room for growth and development within Vietnam’s supporting industries, according to the Japan External Trade Organization (JETRO).

Vietnam’s supporting industries gear up for a value and localization leap amid US tariff pressures

Textile, garment, leather, and footwear

Each year, Vietnam spends billions of US dollars importing fabric, yarn, and accessories. Of which, in the first five months of 2025, China was Vietnam’s biggest importer of some key supporting products related to textile, garment, leather, and footwear.

Vietnam’s Top Import Sources of Supporting Products for
Textile, Garment, Leather, and Footwear (Jan–May 2025, US$ Thousand)

Source: Vietnam National Statistics Office

Known by its reliance on material imports, Vietnam’s unwavering push to boost its localization rate is gradually gaining international recognition, alongside its marked progress in moving up the global value chain.

In 2025, the localization rate in the textile and garment industry, particularly in fabric production and dyeing, is expected to reach an impressive 45 – 50 percent, according to the Vietnam Textile and Apparel Association (VITAS).

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Foreign investment is also evolving rapidly, shifting away from low-value cut-and-sew operations toward high-tech, higher value-added stages such as weaving, dyeing, and synthetic fiber manufacturing.

The country is now home to major textile projects in Bac Ninh, Hai Phong, and Ninh Binh, equipped with cutting-edge, automated, and environmentally friendly technologies, signaling investor confidence in Vietnam’s industrial ascent.

See more: Seizing Investment Opportunities in Vietnam’s Garment and Textile Sector

Mechanical engineering

Raw materials for mechanical engineering in Vietnam, primarily iron, steel, and non-ferrous alloys, are sourced from overseas markets. In 2024, the primary countries and territories supplying steel to Vietnam include China (67.6 percent), Japan (9.12 percent), followed by Taiwan (China), South Korea, and others.

In the first five months of 2025, China continues to lead in both raw materials and components for mechanical engineering imported to Vietnam.

Vietnam’s Top Import Sources of Mechanical Supporting Products
(Jan–May 2025, US$ Thousand)

Source: Vietnam National Statistics Office

Regarding raw materials, Vietnam is making ongoing efforts to ensure a more balanced and transparent market for the mechanical engineering sector. The country has achieved partial self-sufficiency in long steel and flat steel, with key players like Hoa Phat or Pomina leading the domestic market.

Meanwhile, in terms of components, Vietnam’s efforts to accelerate the transformation of its mechanical supporting industries have become increasingly evident, with Thaco, a local pioneer, playing a role beyond that of a reliable sourcing partner in Vietnam.

In 2022, Thaco Industries signed multiple export contracts for mechanical components to the United States, Canada, South Korea, and Japan.

In June 2025, Ho Chi Minh City (HCMC) also approved Thadico Binh Duong’s investment of over VND 75 trillion (approx. US$2.87 billion) to develop Vietnam’s first dedicated mechanical supporting industrial park, while simultaneously establishing a Supporting Industry Business Association to drive sectoral growth.

Electronics

In the first five months of 2025, China remained Vietnam’s top supplier of computers, electronics, and components, with exports to Vietnam totaling approximately US$19 billion, and continuing to lead in phones and related parts.

However, South Korea is emerging as a strong contender, closely trailing the US$14.6 billion in electronics exports to Vietnam, narrowing the gap and challenging the current market leader in this sector.

Vietnam’s Leading Import Sources of Electronics and Parts
(Jan–May 2025, US$ Thousand)

Source: Vietnam National Statistics Office

Vietnam now ranks as the world’s fifth-largest exporter of electronics and computer components, and second in phones and parts. This position is fueled by major multinationals like Samsung, LG, Foxconn, and Intel.

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In 2022, Samsung partnered with 257 Vietnamese suppliers producing components such as circuit boards, plastic casings, batteries, and sensors. Key partners include An Phat Holdings and Minh Nguyen JSC.

LG also works with around 50 local suppliers, including Samsung Electro-Mechanics Vietnam, Tan A Dai Thanh, and Viet Hoa Electronics. Its goal of reaching a 50 percent localization rate by 2025 highlights LG’s strong commitment to Vietnam’s supporting industries.

See also: How Are US Tariff Threats Affecting the Vietnamese Electronics Industry?

Automotive

Vietnam’s supporting industry for the automobile sector has remained underdeveloped, with a relatively small scale. In 2023, about 70 percent of vehicles sold were assembled domestically, yet only 20 percent of their components were produced within Vietnam.

As consumption is not yet substantial, international component manufacturers have lacked sufficient incentive to establish local production in Vietnam, resulting in an ongoing dependence on imported parts.

Vietnam’s Top Import Sources of Automotive Supporting Products
(Jan–May 2025, US$ Thousand)

Source: Vietnam National Statistics Office

However, Vietnam’s reliance on imported auto parts is likely to change as policies and market trends shift. From July 2026, gas-powered motorcycles and mopeds will be restricted on key roads in Hanoi. A shift in consumer demand toward electric vehicles is expected to begin as early as 2025.

These changes, along with rising environmental awareness, are set to boost demand for locally produced materials and components like plastics, rubber, electronics, and motor accessories.

For foreign investors, this is a timely opportunity to enter Vietnam’s growing auto market. By transferring technology and building local partnerships, international firms can meet rising demand while supporting Vietnam’s push for cleaner, more self-reliant production.

See also: Vietnam Automotive Industry in 2025: Growth, Tariff Impacts and Outlook

Opportunities for investors in Vietnam’s supporting industries amid US tariff pressures

Preferential tax rates

Vietnam is offering attractive corporate income tax (CIT) incentives to boost the development of supporting industries. Typically, the country’s CIT rate is 20 percent. However, with the implementation of the amended CIT Law, small enterprises with eligible annual revenue shall enjoy preferable CIT rates as follows:

• Businesses earning up to VND 3 billion (US$114,701) annually will pay a 15 percent CIT; and
• Businesses generating from more than VND 3 billion to less than VND 50 billion (US$1.9 million) will qualify for a 17 percent rate.

It is noteworthy that these rates are not applicable to companies that are subsidiaries or have affiliated relationships with a related company that does not meet the required conditions.

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For sectors that fall under the supporting industries encouraged by the Vietnamese government, eligible projects can benefit from:

• A 10 percent CIT rate for 15 years; or
• Full exemption in the first four years, 50 percent reduction for the following nine years.

To be qualified for these incentives, manufacturers must operate in one of the designated supporting industry product categories specified in the Annex of Resolution 111/2015/ND-CP.

See also: 2025 CIT Law: Implications to Manufacturing Companies in Industrial Parks

Cost and funding support

Additionally, on 14 July 2025, the Vietnamese government also issued Decree No. 205/2025/D-CP  (“Decree 205”) amending and supplementing several articles of Decree No. 111/2015/ND-CP, on the development of supporting industries. The Decree will take effect from September 1, 2025. Of which, organizations and individuals involved in technology transfer in supporting industries will receive tremendous support when investing in Vietnam. Notably:

• Organizations and individuals engaged in R&D, transfer, innovation, and improvement of technologies to produce prioritized supporting industry products are eligible for incentives and support from the National Technology Innovation Fund, the National Science and Technology Development Fund, the National High-Tech Program, and other technology transfer and policy-based incentives.
• Up to 50 percent of cost will be covered for equipment, prototypes, design, software, training, consultancy, patents, IP transfer, and result validation in joint R&D and technology transfer projects between enterprises and science & technology organizations.
• Up to 70 percent of cost support is provided for activities that develop a stronger base of experts and advisory units for technology deployment and transfer.

Therefore, not only are investment costs reduced, but a stable and supportive environment for sustainable growth is also ensured by the Vietnamese government. These benefits are highly valuable for foreign-invested enterprises looking to establish long-term operations in Vietnam.

See also: Vietnam-US Trade Deal 2025: Impacts and Strategic Responses

Key partners for Vietnam’s supporting industry development

Japan

Japanese enterprises are well-positioned to capitalize on these incentives and reinforce their status as Vietnam’s leading partners in mechanical engineering. Stronger linkages between FDI firms and local suppliers in the supporting mechanical sector are already taking shape. According to JETRO’s 2024 survey, 56.1 percent of Japanese businesses in Vietnam plan to expand investment within the next one to two years, while 50.9 percent aim to boost local procurement – the highest rate among ASEAN countries.

India

India is also rapidly emerging as a strategic partner for Vietnam in the textile and garment industry. Backed by a long-standing textile tradition, India holds competitive advantages in both natural fibers, such as cotton, jute, silk, and wool, and synthetic materials including polyester and nylon. Strengthening imports of cotton and yarn from India could help enterprises reduce input costs by 22–27 percent, owing to preferential tariffs under the ASEAN–India Free Trade Agreement (AIFTA).

South Korea

South Korean enterprises can also stand to gain further by leveraging Vietnam’s supportive incentive policies in the electronics and automotive industries. Over the past few years, South Korean investment has also made a significant impact, with major players like Hyundai, Kia, and LG having expanded beyond assembly to foster Vietnamese local supply chains. Vietnamese firms such as Samco, Hung Phat Precision Engineering, and Hung Vuong International have also emerged as reliable component suppliers to Korean automakers.

Germany

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Germany is also emerging as a promising investment partner for Vietnam, especially in mechanical engineering, electronics, automobiles, and high-tech industries. Leading German firms such as Ziehl-Abegg and Kärcher have significantly expanded their presence in Vietnam in recent years, reaffirming the country’s growing appeal as a manufacturing and innovation hub.

Despite global economic uncertainties, German enterprises have continued to scale up operations, reflecting strong long-term confidence in Vietnam’s strategic location, skilled workforce, and supportive investment climate. Renowned brands like Mercedes, Hettich, Häfele, and WMF are also deepening their engagement through brand development and enhanced local distribution networks, further highlighting the market’s untapped potential.

Conclusion

With Decree 205, Vietnam signals a decisive push to modernize its supporting industries and welcomes unprecedented high-impact technology transfer. The country is poised to leverage cutting-edge technologies in supporting industries, making it a prime destination for forward-thinking investors. By fostering deeper industrial linkages and promoting greater technological autonomy, Vietnam can steadily advance its position toward higher-value segments in the global value chain.

Foreign enterprises eyeing long-term growth should not overlook Vietnam’s extensive network of 17 signed free trade agreements (FTAs), which unlock wide-ranging market access and significant tariff advantages. Coupled with a relatively stable political environment, these factors make Vietnam a reliable and attractive destination for long-term industrial development and strategic supply chain repositioning.

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