US Tariffs Could Cost Vietnam $25 Billion, UNDP Says

Vietnam’s exports to the United States could be reduced by close to 20% because of US tariffs imposed in August, according to estimates by the United Nations Development Programme.

And that would make it the worst-hit country in Southeast Asia.

Vietnam was the world’s sixth-largest exporter to America last year with $136.5 billion worth of shipped goods, US trade data show. Those goods are largely produced in factories run by US and foreign multinational companies or their suppliers.

ALSO SEE: US Investment Demands Could Spur Financial Crisis: SKorea’s Lee

In a worst-case scenario of very high tariff-driven US inflation, the 20% duties levied on Vietnamese goods could cause its US exports to fall “over time by more than $25 billion, nearly one fifth of the yearly total,” Philip Schellekens, UNDP chief economist for the Asia-Pacific region, told Reuters.

Vietnam’s finance and industry ministries did not immediately reply to requests for comment.

The first comprehensive Vietnamese data released since tariffs took effect on August 7 show Vietnam’s exports to the United States, its biggest market, fell by 2% in August from July, with a 5.5% drop for footwear, of which Vietnam is the world’s second-largest supplier, according to the customs department. That followed a surge in exports before tariffs.

The World Bank revised down Vietnam’s growth forecasts for this year after the US tariffs took effect.

Nike, Adidas and Puma, which produce a large part of their global output of shoes through suppliers in Vietnam, declined to comment.

Most ASEAN states face 9.7% drop

The 19.2% potential fall in Vietnamese exports to America would be nearly twice as high as the average 9.7% possible drop in exports from Southeast Asia, the most impacted region in the continent and a major industrial hub, according to a UNDP report released last week, one of the first public estimates of the hit on trade flows since the tariffs took effect.

“No country in Southeast Asia is more exposed to US tariff hikes than Vietnam,” said Schellekens, noting only China in East Asia would be hit harder in dollar terms.

Among large Southeast Asian nations, Thailand’s US exports could fall 12.7%, Malaysia’s 10.4% and Indonesia’s 6.4%, the UNDP report said.

The estimated fall of US exports would shave roughly 5% from Vietnam’s Gross Domestic Product, although the tariff impact could take years to fully materialise, and was likely to be mitigated by exporters’ absorption of some costs, Vietnam’s diversification to other regions and bigger domestic spending.

And it could be worse

The UNDP estimates are based on a scenario in which duties would be entirely passed through to US consumers, damping demand, which so far has not happened, as the impact on US inflation has been moderate.

The UNDP did not take into account either the possible effect of 40% tariffs on goods transhipped through Vietnam, which could have a devastating impact if Washington decided to set strict limits on foreign components used in exported items, given Vietnam’s goods highly rely on Chinese input.

The UNDP data did not factor in current tariff exemptions on consumer electronics, which account for about 28% of Vietnam’s total exports to America. However, even if Washington upheld those waivers, Vietnam’s US exports could still fall by $18 billion, Schellekens said.