Vietnam Braces for Potential US ‘Transit Tax’: Businesses Weigh Relocation & Increased Domestic Production

Hanoi, Vietnam – August 16, 2025 – A sense of urgency is rippling through Vietnam’s business community following warnings from Dr. Can van Luc, a key advisor to the Prime Minister, regarding the potential imposition of US “transit taxes” on Vietnamese exports. The news, delivered during a presentation of Vietnam’s raw material trading partner data, has sparked discussions about the future of the nation’s export-driven economy and the need for a strategic shift towards greater domestic production. This is a breaking news development with significant implications for SEO and Google News visibility.

The ‘Transit Tax’ Wake-Up Call

Dr. Luc’s analysis, presented to a room of concerned business representatives – many of whom immediately documented the data with their phones – highlights a vulnerability in Vietnam’s current economic model. For years, Vietnam has thrived as a manufacturing hub, often assembling goods with components sourced from elsewhere for export to the US. The looming threat of a transit tax, essentially a levy on goods deemed not sufficiently “made in” the exporting country, could significantly erode this advantage.

Data presented showed surprisingly low levels of domestic content in key export sectors. Specifically, shoes (16.71%), toys and sports equipment (9.84%), electronic products and components (9.63%), and machines and devices (6.15%) rely heavily on imported materials. This reliance makes them particularly susceptible to potential tariffs.

Localization & Diversification: The Path Forward

The core message from Dr. Luc and Nguyen Ngoc Hoa, Chairman of Huba (Vietnam Business Association), is clear: Vietnam must increase the localization of its production processes. “Companies would have to increase the level of localization of their export products,” Dr. Luc stated. This isn’t just about avoiding potential tariffs; it’s about building a more resilient and sustainable economy, creating jobs, and increasing the real value generated within Vietnam. Hoa emphasized that boosting domestic production would simultaneously mitigate tariff risks and foster economic growth.

However, the definition of what constitutes a “country’s product” remains murky. While the World Trade Organization (WTO) suggests a 30-37% production threshold, US regulations are currently undefined. Dr. Luc advised a pragmatic approach: Vietnam should allow the US to establish its criteria and then negotiate accordingly. He also recommended that Vietnamese companies aim for over 50% in-house production as a safeguard.

Businesses Consider US Production & Alternative Routes

The potential for significant tariffs is already prompting businesses to explore alternative strategies. Phung Quoc Man, Chairman of the Ho Chi Minh City Association for Wood Processing, revealed that many companies are considering establishing production facilities directly within the United States. “Many companies would have considered setting up production facilities in a third country or directly in the USA to reduce tax pressure,” he explained. Wood companies, in particular, with sales ranging from $50 to $300 million USD, are actively planning “Made in the USA” operations run by Vietnamese teams.

Some companies are already taking proactive steps. Reports indicate that certain Vietnamese firms have begun producing in Colombia and exporting from there to the US, leveraging lower tax rates. This highlights the agility and resourcefulness of Vietnamese businesses in navigating complex trade challenges.

The Wood Industry: A Case Study in Success & Vulnerability

Vietnam’s wood industry provides a compelling example of both success and potential risk. Dr. Luc noted that four out of ten wooden articles found in American family kitchens originate from Vietnam – a testament to the quality and affordability of Vietnamese wood products. In fact, the trade surplus in this sector reached a remarkable $10.13 billion in the first 11 months of 2023, making it Vietnam’s largest agricultural trade surplus. However, this success also makes the industry a prime target for potential transit taxes, underscoring the urgency of the current situation.

The situation demands a proactive and adaptable approach from both the Vietnamese government and its business community. Investing in domestic supply chains, diversifying export markets, and strategically positioning production facilities will be crucial for navigating the evolving global trade landscape and ensuring Vietnam’s continued economic prosperity. Staying informed about these developments is vital for anyone involved in international trade, particularly those focused on the Southeast Asian market. For ongoing updates and in-depth analysis, continue to check back with Archyde.com.