Reciprocal Tariffs Newletter_RSM Vietnam

In the early morning of April 3, 2025, U.S. President Donald Trump officially announced the United States' reciprocal tariff policy on most countries around the world, under which goods from Vietnam are subject to a very high tariff rate of 46%. Let’s join RSM in understanding and assessing the impacts of this event.

What Are Reciprocal Tariffs and How Can We Respond to Their Impacts?

Reciprocal tariffs are a type of tax that a country imposes on imported goods from another country to offset subsidies that the exporting country’s government has granted to its domestic businesses. This helps protect the domestic manufacturing sector from unfair competition and maintain fairness in international trade. Specifically, reciprocal tariffs serve the following main purposes:

• Preventing unfair competition: These tariffs help prevent subsidized imports from undercutting market prices, thereby protecting domestic industries and preserving the real value of products.

• Protecting domestic production: They reduce the risk of subsidized foreign goods harming domestic manufacturing.

• Ensuring trade balance: Reciprocal tariffs aim to prevent indirect dumping and uphold fairness between countries in global trade.

In this case, reciprocal tariffs are calculated based on the tariff rate necessary to balance the bilateral trade deficit between the U.S. and each of its trading partners. This approach assumes that long-standing trade deficits result from a combination of tariff and non-tariff barriers preventing balanced trade. The U.S. is calculating reciprocal tariffs in a way that would ideally bring bilateral trade deficits down to zero.

However, certain goods will be exempt from reciprocal tariffs. These mainly include specific types of steel, aluminum, derivative products, and automobiles and auto parts already subject to Section 232 tariffs (i.e., Section 232 of the U.S. Trade Expansion Act of 1962, which allows the President to impose trade restrictions if the U.S. Department of Commerce determines that imports threaten national security). Exempted goods also include copper, pharmaceuticals, semiconductors, lumber, certain critical minerals, and energy products.

Impacts and Challenges for Vietnam’s Economy

The imposition of a 46% reciprocal tariff on Vietnamese goods will have far-reaching impacts that businesses and the government should closely monitor:

• Decline in exports: High tariffs will reduce the competitiveness of Vietnamese goods in the U.S. market, leading to fewer orders and decreased revenues. Exporting businesses will face significant pressure.

• Disruption of supply chains: Key export sectors such as textiles, seafood, aluminum, steel, and electronics may face difficulties due to high tariff burdens.

• Risk of reduced foreign direct investment (FDI): As Vietnam’s exports to the U.S. become more expensive, foreign-invested companies may shift their manufacturing facilities to countries with lower or no reciprocal tariffs (e.g., Thailand, Indonesia, Bangladesh, India). This would significantly affect Vietnam’s growth targets, especially given that the FDI sector currently contributes about 20% of Vietnam's GDP and accounts for roughly 70% of total export turnover.

What Should Businesses Do to Prepare?

• Impact analysis: Businesses should accurately assess how the 46% reciprocal tariff affects their products, especially major exports to the U.S.

• Seek alternative raw materials: Enhance flexibility in sourcing by identifying new suppliers with more cost-effective materials to mitigate the impact of tariffs.

• Adjust product pricing: Companies may need to adjust their pricing to partially offset tariff-related losses.

• Revise product strategy: Consider changing the product mix or focusing on items less affected by the new tariffs to minimize losses.

• Diversify markets: Overreliance on the U.S. market increases risk. Businesses should proactively expand into new export markets (e.g., Europe, Asia, or other countries) to reduce vulnerability.

• Improve production processes: Optimize supply chains and manufacturing processes to lower costs and enhance product competitiveness, even under high tariffs.

• Invest in technology: Apply new technologies and innovate production to improve efficiency and reduce expenses.

• Enhance transparency: Ensure all manufacturing and export activities fully comply with tax and export regulations. This will help businesses avoid tax disputes and maintain credibility with international partners.

• Explore and apply for available U.S. duty reduction mechanisms, such as the First Sale for Export (FSFE) rule, to help minimize the impact of reciprocal tariffs.

RSM will continue to monitor and update developments on this issue, as well as assess and analyze the potential impacts on various aspects of businesses.

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Response Taxes On Vietnam In 2025 Affect The Market_EN.pdf

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