Vietnam was Asia’s biggest beneficiary of the first Trump administration. While Trump 2.0 will probably not be as beneficial to Vietnam as Trump 1.0 was, there is “minimal risk” that Trump’s tariff policies will derail Vietnam’s growing economy – in sharp contrast to claims made in some articles published since his election, writes Michael Kokalari, chief economist at VinaCapital.
Michael Kokalari, chief economist at VinaCapital. Photo courtesy of the company.
Last week, Trump picked the best possible Treasury Secretary for Vietnam, Scott Bessent, who has repeatedly said Trump’s tariff proposals are “maximalist” positions that would likely be watered down in negotiations; Trump’s recent announcement that he intends to impose 25% tariffs on Canada and Mexico should probably be viewed in that vein.
More importantly for Vietnam, Bessent favors considering US geopolitical objectives when determining tariff levels on individual countries. The details of how exactly this could function, as well as other specifics of Trump’s likely tariff strategy, are outlined in a white paper titled “A User’s Guide to Restructuring the Global Trading System”, which circulated widely after Trump’s election and was written by a senior economic policy advisor in Trump’s first administration and who holds an economics PhD from Harvard University and 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 Vietnam’s usefulness to the U.
S. to help it achieve its geopolitical objectives essentially ensures that Vietnam will not be singled out for overly harsh tariff treatment by Trump.
Before the Biden administration came into office, there were many concerns that Vietnam would not fare as well under Biden as it had during the Trump-instigated, U.S.-China trade war. The January 2021 publication of the Atlantic Council’s “The Longer Telegram” dispelled those concerns and made it clear that the U.S.-Vietnam relationship would continue to strengthen under Biden.
We have highlighted both of these policy papers because the 2021 “Longer Telegram” report was a preview of the Biden administration’s stance towards Vietnam (which we characterize as “unambiguously positive treatment”) and the 2024 “User’s Guide” report hints at how Vietnam is likely to be treated by the next Trump administration (we expect “neutral to slightly positive” treatment).
Finally, the “User’s Guide” policy paper details how tariffs could be used to encourage the re-shoring of manufacturing jobs back to the U.S. via a sophisticated strategy that would resemble the 1985 “Plaza Accord” agreement to weaken the U.S. dollar but that would also strengthen the dollar’s role as the world’s reserve currency.
Trump’s re-election prompted several international business publications to warn that his tariff policies could drastically derail Vietnam’s economy. Articles with titles such as, “A Rough Four Years Await Vietnam” were published and claims that “Vietnam’s economic growth – which was 5% last year – could shed up to 4 percentage points” were published and were, in our view, extremely pessimistic because the assertions were not accompanied with any evidence to explain why Vietnam 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 Vietnam if Trump were to proceed with his plans to put 10-20% blanket tariffs on all countries (ex-China
What are the potential risks to Vietnam’s economy under Trump 2.0?
## Vietnam’s Economy Under Trump 2.0: An Interview with Michael Kokalari
**Host:** Welcome back to the show. Today, we’re discussing Vietnam’s economic future under the new Trump administration. Joining us is Michael Kokalari, Chief Economist at VinaCapital, who recently wrote a piece arguing that Vietnam is in a strong position despite concerns about potential trade tensions. Michael, thanks for being here.
**Kokalari:** Thanks for having me.
**Host:** You state that while Vietnam may not reap the same benefits under Trump 2.0 as it did during his first term, there’s minimal risk of his policies derailing Vietnam’s economy. Can you elaborate on that?
**Kokalari:** Absolutely. Vietnam benefited tremendously from the first Trump administration’s trade policies, particularly the trade war with China. Many companies shifted production to Vietnam, boosting its manufacturing sector and overall economic growth. However, the new administration’s approach appears more nuanced.
**Host:** You mentioned Trump 2.0 won’t be as beneficial as Trump 1.0. What leads you to that conclusion?
**Kokalari:** There are a couple of factors. Firstly, the global economic landscape has changed since Trump’s first term. We’re seeing rising inflation and interest rates globally, which could dampen demand for Vietnamese exports. Secondly, while Trump’s trade advisor, Scott Bessent, has indicated a willingness to negotiate on tariffs, we can expect a more assertive stance on trade issues compared to the previous administration.
**Host:** Despite these potential challenges, you’re optimistic about Vietnam’s prospects. Why?
**Kokalari:** Vietnam’s strategic importance to the US has grown. Both politically and economically, Vietnam is seen as a crucial partner in the region. The US recognizes Vietnam’s value in achieving its geopolitical objectives. As Bessent has said, geopolitical factors will play a significant role in determining tariff levels [[1](https://www.vietnamtradeportal.gov.vn/?r=tradeInfo/index)].This suggests Vietnam is unlikely to be heavily targeted by tariffs.
**Host:** Fascinating. So, you’re saying Vietnam’s strategic relationship with the US will ultimately shield it from the harshest trade measures?
**Kokalari**: Precisely.
**Host:** Thank you, Michael, for sharing your insights on this important topic.
**Kokalari:** My pleasure.