Vietnam, explained.

A factory setting with female workers and basketballs

Workers produce basketballs for export to Vietnam in Sihong, China (Xu Changliang/VCG via Getty Images)

Vietnam pays the price for its trade success

The Southeast Asian nation’s record trade surplus could make it a target for Washington, testing Hanoi’s balancing act with Beijing.

Henry Storey

11 September 20264 min read

Trade figures released in late August showed (Opens in new window) that Vietnam had the dubious distinction of running the world’s largest trade deficit with the US for the first half of this year.

Vietnam’s trade surplus (Opens in new window) reached US$114 billion, ahead of Mexico (US$103 billion) and China (US$74 billion), and compared to US$ 123 billion for the entirety of 2024. Vietnam is the fifth-largest exporter of goods to the US but imports relatively little.

Hanoi’s surging trade surplus is symptomatic of its success and good fortune but also, increasingly, its vulnerability.

Vietnam has been, alongside Mexico, the primary beneficiary of the protean US tariff regimes that have targeted China since 2018. In June 2026 the effective US tariff rate (Opens in new window) on Vietnam hovered at just about 6%, well below China’s 23%.

Vietnam’s other major advantages are mostly endogenous and include low labour costs, a dense network of free trade agreements, comparably pro-business policies and, crucially, proximity to southern Chinese supply chains.

Hanoi has been very wary of transgressing Beijing’s red lines – even while deepening security ties with the US and its allies.

These factors have combined to make Vietnam a favoured “China +1” for Korean, Japanese, Western, and Chinese multinationals alike. Samsung, which churns out electronics (particularly mobile phones) in plants across the country, has consistently accounted for more than 10% (Opens in new window) of Vietnam’s total exports.

Vietnam’s critical role in electronics supply chains – primarily at the final assembly level – has also allowed it to join other Asian peers in making a motza serving as picks and shovels suppliers for the data centre boom.

Machinery, electronics and appliances comprise over 60% (Opens in new window) of Hanoi’s export to the US, with companies like Foxconn (Opens in new window) recently setting up data centre component manufacturing. The White House’s increasingly labyrinthine trade regime exempts (Opens in new window) many of these goods’ categories from tariffs.

In this administration, a lumpy trade surplus is more than sufficient to raise Washington’s ire. Vietnam’s vulnerability is compounded by its close integration with Chinese supply chains, which has led to consistent allegations that the country serves as a hub for Chinese transshipment.

While some transshipment undoubtedly occurs, its prevalence has been grossly exaggerated.

Tan Vu Terminal, operated by Vietnam Maritime Corp, at Haiphong Port in Haiphong, Vietnam (Linh Pham/Bloomberg via Getty Images)

China accounted for around 40% (Opens in new window) of Vietnam’s US$395 billion worth of imports in the year to August. Chinese capital and intermediate goods which are used by Vietnamese factories, account for a significant portion (Opens in new window) of this trade.

As one Lowy Institute analysis (Opens in new window) found more than 70% of Vietnam’s exports reflect non-China sources – “including value produced in Vietnam itself and other countries along the supply chain besides China.”

Specious notions of Vietnam serving as a mere pit stop for the repackaging of Chinese goods also ignores one of the major thrusts of the country’s new growth (Opens in new window) strategy, which is to build on successes in sectors like furniture by fostering deeper local supply chains.

Regardless of the veracity or otherwise of US claims, Vietnamese officials are undoubtedly feeling the heat.

In July, a US customs team visited Vietnam for spot inspections (Opens in new window) on Chinese-owned factories. In the last week of August, Vietnam’s Deputy Prime Minister Nguyen Van Thang visited Washington to try to revivify negotiations on a bilateral trade deal.

Months before the Supreme Court ruled that President Trump’s sweeping tariffs exceeded his authority, Vietnam and the US signed a framework agreement on “reciprocal, fair and balanced trade (Opens in new window)”.

However, efforts to finalise a deal have since run into disagreements (Opens in new window) over transshipment and rules of origin requirements.

Trade deals that the US has negotiated with Malaysia, Cambodia, and Indonesia might provide further clarity on other reasons for the delay.

The US–Indonesia agreement, for example, commits (Opens in new window) Jakarta to cooperating with the US on economic security issues like export controls and sanctions. Washington also retains the right to reinstate higher tariffs (Opens in new window) if Indonesia enters into a trade agreement with a country that “jeopardizes essential US interests”.

These types of clauses run into highly sensitive areas, including Vietnam’s totemic adherence (Opens in new window) to formal non-alignment.

That Malaysia, Cambodia, and Indonesia – all countries that have arguably hewn closer to Beijing in recent years – have signed these agreements suggests an element of flexibility in the framing of these more contentious clauses.

Still, for complex reasons of geography, recent history (Opens in new window), and party ties (Opens in new window), Hanoi has been very wary of transgressing Beijing’s red lines – even while deepening security ties with the US and its allies (Opens in new window), and quietly but forcefully (Opens in new window) asserting maritime claims in the South China Sea.