Vietnam’s Growth Story Isn’t Over Yet

• Vietnam’s economy has come a long way, with GDP now about a third bigger than before the pandemic. Last year’s growth rate of 7% was solid, outpacing the pre-pandemic trend of 6.5%. But the latest figures show the pace may be easing off. In the first quarter of 2025, growth dipped to 6.9% year-on-year from 7.6% earlier. Consumption, investment, exports, and imports, key signs of domestic demand – are all losing a bit of steam.

• Equities, though, have taken more of a beating than the economy itself. After Trump’s surprise tariff threat on “Liberation Day” in April, Vietnamese stocks tumbled 17%. But when a 90-day pause on tariffs was announced, the market bounced back, recovering losses and pushing even higher.

Caught in the Trade War Crossfire

• Vietnam sits in a tricky spot. It scored the lowest risk in our trade war vulnerability index of 16 countries spanning the EU, BRICS, Canada, and Mexico. But unless Vietnam strikes a deal with Trump during the 90-day window, it could face a whopping 46% effective tariff rate, the second highest after China.

• Vietnam’s trade relationship with the US leaves little wiggle room. Its trade surplus with America was the fourth largest in 2024, trailing only China, the EU, and Mexico, and it’s been growing for four years straight. Almost one-third of Vietnam’s exports go to the US, putting it right behind Mexico and Canada in terms of dependence.

• That’s a big exposure. With gross exports making up 88% of Vietnam’s GDP, tariffs wouldn’t just hurt exports, they’d hit the whole economy.

• Trump’s main sticking point is the trade imbalance. Vietnam sends far more to the US than it buys. Only 4% of its imports come from the US, compared to nearly 40% from China. There’s also worry that Chinese exporters are dodging US tariffs by rerouting goods through Vietnam. It’s a real risk.

• US demand has been driving Vietnam’s export cycle. That means any US slowdown or tariff hike could quickly ripple through the economy.

Who Has the Leverage?

• It might seem like the US holds all the cards, but both sides have their limits. Trump can pressure Vietnam to lower tariffs, open its markets more, and buy more US energy and industrial goods. But the US can’t match Vietnam’s cost advantages, Vietnam’s production costs are nearly half of what it costs in the US.

• Vietnam’s exports are also mostly low-value goods like garments, footwear, and simple manufactured products. These don’t tick the boxes Trump cares about: high-paying American jobs or national security.

Domestic Challenges & Strengths

• Vietnam is certainly in a tight spot in this trade war, but it’s not all bad news. It has every reason to negotiate. Even though exports are key, domestic demand drives a lot of growth. Consumption makes up 55% of GDP and investment another 34%, together nearly the entire economy.

• But some challenges are showing up. Corporate profits are trending down, and although balance sheets are in decent shape, they’re not as strong as regional peers. Free cash flow per share has been negative for two years. Liquidity is tightening. This mix of lower profits and tighter cash suggests investment could slow further.

• For now, credit growth is holding up, thanks to construction and household borrowing. But credit to trade and manufacturing is slowing. PMI surveys are showing manufacturers getting more cautious, cutting prices, and tempering expectations. It’s not just external demand that’s shaky, domestic conditions are also cooling.

• Inflation has ticked up, hitting both headline and core readings. That’s likely to weigh on discretionary spending and keep monetary policy on hold. The central bank has already cut its discount rate by 150 basis points since March 2023, but has kept it steady at 3% since June last year.

Vietnam’s Only Option

• Vietnam doesn’t have many moves left. The reality is it’s likely to give ground in trade talks. Trump wants a symbolic win, a new trade deal to show he’s getting tough. But what the US actually gains from this would be limited.

• Vietnamese companies aren’t moving production to the US. They won’t create many American jobs. And Vietnam’s exports aren’t vital to US national security. Consumers won’t stop buying cheap goods from Vietnam because they can’t get them cheaper at home.

• US firms can’t beat Vietnam’s cost structure, so any major shift would end up costing American consumers.

• Domestically, Vietnam’s growth will probably keep moderating as investment slows and the global outlook stays murky. But don’t expect a recession.

Bottom Line

• Despite the trade war risks, Vietnam’s growth story is still strong. The local economy is providing a solid backstop, and valuations are attractive. At Cordoba Capital, we’re holding our exposure in key sectors like consumer goods, high-end manufacturing, and logistics, focusing on companies with durable cash flows and solid balance sheets. Stocks like Vingroup, Masan Group, and FPT remain on our radar, as they’re well positioned to benefit from domestic demand and longer-term supply chain shifts. We see this as a three-to-five-year opportunity, where patient investors can ride out the volatility and capture the upside as Vietnam’s economic evolution continues. For those who are looking to invest with an eye on the long term, Vietnam’s equities still look like a smart place to be.