Vietnam charms global manufacturers despite US tariffs

Vietnam charms global manufacturers despite US tariffs

Despite steep US tariffs, Vietnam remains a magnet for foreign investment, particularly in manufacturing and industrial real estate, bolstered by competitive policy incentives, upgraded infrastructure, and its pivotal role in global supply chain diversification from China.

According to Beijing-based media group Caixin, Vietnam’s economic ties with the United States are deep. In 2024, exports to America totalled $136.6 billion, accounting for nearly 30 per cent of the country’s GDP.

While the imposition of tariffs dealt a blow to Vietnam’s manufacturing sector, the manufacturing Purchasing Managers' Index recovered slightly in May to 49.8 after falling to 45.6 in April, signalling early signs of stabilisation.

According to figures by the Ministry of Finance, two sectors, manufacturing and real estate, are leading Vietnam’s foreign investment surge.

As of April, newly approved foreign investment exceeded $13.8 billion, up almost 40 per cent on-year. Of that, $8.9 billion flowed into manufacturing, and $2.83 billion into real estate, which jumped close to 62 per cent.

Industrial and construction-related sectors grew 7.4 per cent in the first quarter (Q1) of 2025, contributing more than 40 per cent to GDP.

Speaking at the Vietnam Industrial Parks Development Forum on May 29, Nguyen Thi Dung, vice chair of Vietnam Industrial Real Estate Association,noted that infrastructure investment in industrial parks has become an urgent priority.

"As prime land in central areas dwindles, demand is shifting to second-tier provinces. But challenges remain, including complicated approval procedures, lack of a unified infrastructure plan, land acquisition issues and poor inter-regional connectivity," said Dung.

In a recent interview with Caixin, Lance Li, CEO of BW Industrial, a major Vietnamese industrial real estate firm, said Vietnam’s land supply system differs significantly from China’s.

"In China, land is allocated by the government, enabling fast supply at low cost, meanwhile in Vietnam, land is sold by first-tier developers, with higher prices and longer acquisition timelines," said Li, "Most land in Vietnam is freehold, adding further delays to new supply. The land acquisition process is complex and time-consuming, making it difficult to swiftly increase supply."

"Available land is in short supply in southern development centres such as Binh Duong and Dong Nai. Industrial land prices in Vietnam are now often higher than on the Chinese mainland, with rents rising about 6 per cent a year," he added.

Vietnam has 416 industrial parks (IPs) covering nearly 1.29 million hectares. To accommodate the accelerating shift of global manufacturing, the government plans to add 221 new parks, expand 76, and reconfigure 22 by 2030.

BW Vinh Loc 2 Industrial Hub

BW Industrial, founded in 2018 by Warburg Pincus and Becamex IDC, now operates more than 50 projects across 12 key provinces, managing 10 million square metres of land and $3 billion in assets. Li, who joined in 2021 from ESR China, oversees nearly 4.4 million sq.m of developed or under-construction properties.

According to Li, China-based firms moving overseas are not doing so uniformly. Each company’s decision depends on internal dynamics. He warned that companies should not assume Vietnam is automatically cheaper. Many firms face high hardware costs, lower labour productivity and infrastructure constraints.

"From the first Trump era to the pandemic, and now to Trump 2.0, market dynamics have changed significantly, and the types and pace of corporate relocation have also evolved," Li said.

Lance Li, CEO, BW Industrial

On labour, Li noted that after three months of training, Vietnamese workers could reach 80 per cent or more of the efficiency of Chinese workers, while earning less than 80 per cent of Chinese wages, still an advantage. But only a few firms achieve parity, often relying on automation and advanced management.

The pandemic was a turning point. Initially, only final product manufacturers moved out of China. But COVID-19 paralysed logistics worldwide, sparking widespread supply chain concerns. The industry shifted from 'just in time' to 'just in case', forcing suppliers to localise.

Stricter rules of origin also play a role. Many countries now demand higher local content in exported goods. "To qualify for certificates of origin, the entire supply chain has to move," said Li.

After China lifted COVID-19 restrictions in late 2022, another wave of companies went abroad, not due to sudden shifts, but as long-delayed decisions were finally executed.

Since 2023, Chinese firms continue to expand overseas, each driven by different factors, be it rising orders, cost-cutting, or domestic policy shifts, with Li saying, "Vietnam still holds a manufacturing edge in Southeast Asia. Confucian values instil discipline, with competitive labour costs compared to regional peers. Government efficiency, political stability, and a pragmatic, open stance add to Vietnam’s appeal. The country has signed 17 free trade agreements and maintained low average tariffs, even before the Trump-era trade tensions."

However, uncertainties persist. Li noted that clients are increasingly seeking guidance amid new tariff threats. The US's trade stance remains unpredictable, making some investors wary while others push forward.

He expects the US tariffs on China to remain high, while those on other countries may be negotiated down. The strategy, he said, is classic 'raise high, retreat slowly' diplomacy.

Looking ahead, Li believes China’s outbound manufacturing push will intensify over the next three years. As long as US-China tensions persist, the shift is inevitable. Even China’s cost advantages can’t offset steep tariffs.

"As lead manufacturers relocate, tier-one and tier-two suppliers are following suit, forming entire supply chains abroad. The speed of this evolution depends on how quickly capacity is built up overseas," said Li.

Still, Vietnam needs to manage rising land and labour costs. Wages rise 6 per cent to 7 per cent each year, and in advanced areas, salaries now rival China’s central and western regions. Labour-intensive businesses may also face potential labour disputes, Li warned

VIR