Vietnam’s Textile Sector Amid US Tariff Pressures: Risks and Opportunities

The textile and garment industry is a cornerstone of Vietnam’s export-driven economy, but it now faces significant challenges amidst proposed US tariffs that could dramatically increase export costs. As the country navigates these geopolitical pressures, the sector is exploring strategies for resilience and long-term sustainability.

Vietnam’s textile and garment industry has long been a pillar of the country’s export economy, driving growth, creating employment, and positioning Vietnam as a major global manufacturing hub.

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In 2024, the sector generated over US$44 billion in export revenue, with the US accounting for 40 percent of that total. This success is rooted in Vietnam’s competitive labor costs, improving infrastructure, and access to a vast network of free trade agreements (FTAs).

However, the country’s reliance on external markets, particularly the US, has made it increasingly vulnerable to geopolitical shifts and trade disputes. Now, Vietnam faces a potentially severe blow: a proposed 46 percent reciprocal tariff on textile and garment exports to the U.S., one of its largest and most strategic trading partners.

If implemented, average duties on Vietnamese textile products could jump to around 61 to 62 percent from the current 15 to 16 percent. This increase would significantly affect Vietnamese manufacturers, many of which operate with thin margins of around 5 percent, and could also drive up retail prices for American consumers already grappling with inflation.

Potential impacts from the proposed tariffs

Short-term risks to textile producers

The proposed US tariffs pose multi-layered risks for Vietnam’s textile sector. In the short term, many Vietnamese textile producers have accelerated production and shipping to meet U.S. orders before the July deadline. However, this has also led to canceled orders, job freezes, and workforce reductions—signs that American buyers are already scaling back in anticipation of higher costs.

In the first quarter of 2025, Vietnam’s exports to the US were valued at US$31.4 billion, reflecting a 22 percent year-on-year increase, while imports grew almost at the same rate to US$4.1 billion due to the impact of US tariffs on the textiles and furniture sectors, along with a gradual recovery in domestic demand.

After US President Donald Trump announced reciprocal tariffs, the manufacturing Purchasing Managers’ Index (PMI) posted 45.6, a significant decrease of 4.9 points after signalling growth (50.5) for the first time in four months this past March. The rate of decline was the fastest and most severe in nearly two years.

Andrew Harker, Economics Director at S&P Global Market Intelligence, reports that U.S. tariffs have pushed Vietnam’s manufacturing industry into contraction, with significant declines in new orders, exports, and production. Backlogs fell markedly due to reduced incoming orders, continuing a similar depletion rate as the previous month. In response, manufacturers cut jobs for the seventh month in a row. Firms scaled back purchasing, with input buying declining for the second month and recording the sharpest drop since May 2023. Inventories fell at their fastest rate since September, reflecting weaker demand and cautious management amid rising uncertainty.

Dependence on the US market presents long-term challenges

At a broader level, the sector’s dependence on the US market is being exposed, considering that the US remains the largest export destination of Vietnam, accounting for 30 percent of its total exports. Vietnam does not have a bilateral free trade agreement with the US, meaning its textile exports are already subject to the Most-Favored Nation (MFN) tariff regime. Some product categories, such as jackets, already face tariffs of up to 27 percent. A hike to 61–62 percent could make Vietnamese products uncompetitive, especially as buyers consider alternatives in Bangladesh, India, or Central America.

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Moreover, Vietnam’s production model still depends heavily on imported raw materials, especially cotton and yarn from China and India. Considering US tariffs are extending to these countries, the cost of imported inputs will rise, inflating production costs for Vietnamese manufacturers and adding pressure on supply chains. Indeed, China makes up 38 percent of its imports. With no clear product-specific guidelines yet released by the US side, companies are finding it difficult to plan ahead or negotiate contracts with confidence.

Broader geopolitical implications

This situation may create a ripple effect across supply chains, influencing global markets. As manufacturing in Vietnam contracts, industries worldwide that depend on their exports could face stock shortages or price changes. Notably, the stocks of Nike, Adidas, and Puma dropped sharply after Vietnam was hit with 46 percent tariffs, given that the country is a key manufacturing hub for global shoe brands.

Vietnam’s government to tackle the situation

In response to mounting trade pressures and global headwinds, Vietnam is adopting a multifaceted strategy to reduce its vulnerability and reposition its textile and garment industry for long-term sustainability. Prime Minister Pham Minh Chinh has emphasized the urgency of industrial upgrading, market diversification, and deeper international integration as essential pillars of a more resilient growth model.

Optimizing the existing FTAs

At the policy level, the government is encouraging firms to explore new export markets through existing FTAs, such as the EU-Vietnam Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP). By boosting exports to the 17 countries with which it has preferential trade arrangements, Vietnam can soften the impact of U.S. tariffs while maintaining access to major global consumer markets.

Transition to higher-value manufacturing

The government is encouraging domestic firms to move up the global value chain by transitioning from low-cost outsourced manufacturing toward Original Design Manufacturing (ODM) and Original Brand Manufacturing (OBM). This shift would enable Vietnamese enterprises to capture greater value, build brand recognition, and reduce exposure to external trade shocks such as tariff fluctuations.

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To support businesses and workers affected by shifting trade dynamics, the Vietnamese government is preparing targeted support measures while pushing ahead with structural reforms. It has set ambitious economic goals, aiming for GDP growth of at least 8 percent in 2025 and a total GDP exceeding US$500 billion, which would place Vietnam among the world’s top 30 economies. The country is approaching upper-middle-income status with per capita income expected to surpass.

Building long-term resilience through infrastructure investment

Beyond trade diversification and value chain upgrades, Vietnam is laying the foundation for long-term economic resilience through strategic infrastructure investment. A flagship initiative is the development of a multi-billion-dollar railway linking Hai Phong port—home to 241 Chinese investment projects worth US$6 billion—with China. This project aims to enhance regional trade integration and logistics efficiency, directly supporting the textile industry’s export competitiveness.

In parallel, the Lao Cai–Hanoi–Hai Phong railway will create a vital transportation corridor for both exports and raw material imports. Once linked to China’s rail network, Vietnamese goods will gain faster and more cost-effective access to Europe via the China-Europe freight train system. The model echoes the success of the China–Laos Railway, which has transformed Laos from a landlocked state into a regional logistics hub, significantly reducing shipping times and costs.

Promoting innovation and digital transformation

A strong push toward technological innovation and digital transformation within the textile sector complements these infrastructure developments. The adoption of automation, smart manufacturing systems, and data-driven supply chains is enabling firms to lower costs, improve productivity, and comply with stricter international standards on sustainability and traceability.

At the same time, green manufacturing has become a national priority, aligning with global ESG (Environmental, Social, and Governance) trends and reinforcing Vietnam’s image as a forward-looking production hub. This twin transition to digitalization and environmental sustainability is not only necessary but irreversible in the context of global supply chain evolution.

Opportunities for Vietnam

Despite the ongoing tensions, broader geopolitical shifts may offer Vietnam new opportunities. As the US recalibrates its trade policy toward China, particularly through tightening the de minimis threshold for duty-free imports, many American buyers are likely to seek alternative sourcing destinations. Vietnam, with its reliable production base and increasingly sophisticated capabilities, stands to benefit from this strategic realignment.

These comprehensive domestic efforts are now being matched by high-level diplomatic engagement to manage external pressures more effectively. Vietnam is reinforcing its domestic reforms with active international engagement to navigate rising trade tensions.

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In a significant diplomatic development, PM Chinh announced that Vietnam is one of six countries, along with the United Kingdom, India, South Korea, Japan, and Indonesia, prioritized by the United States for tariff negotiations. The first round of bilateral talks is scheduled for May 7, following Washington’s temporary 90-day deferral of proposed “reciprocal” tariff hikes for key trade partners (excluding China), during which a provisional 10 percent rate has been applied.

Takeaway

As Vietnam accelerates its domestic reforms and deepens international engagement, the upcoming US–Vietnam tariff negotiations on May 7 will serve as a pivotal moment. The talks are expected to clarify the direction of bilateral trade relations and reveal how Vietnam can leverage current challenges to solidify its position in global supply chains.

To stay competitive in this shifting landscape, firms must invest in energy-efficient production, integrate recycled materials, harness renewable energy, and deploy technology to enhance both quality and output. From a sourcing standpoint, companies like Vinatex have recommended diversifying raw material supply, including the increased use of US-grown cotton. This approach could improve trade relations with the U.S. while also cushioning supply chain disruptions.

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