Will Viet Nam's Balancing Act Persist in 2026?

Despite tight rope walking between the two largest economies in the world, Viet Nam has become one of the clear winners of the U.S.-China trade war. With Q3 GDP rounding out at 8%, the Asian Development Bank (ADB) cites an expected 6.7 percent GDP projection, while the United Overseas Bank (UOB) claims 7.7 percent for the year. As tariffs and geopolitical mistrust fractured global supply chains, manufacturers seeking alternatives to China poured investment into the underdog nation. Factories increased output to ship goods before tariffs kicked in, with the flurry of production firmly cementing its place as one of Asia’s fastest growing and most dynamic economies. 

But that success comes with mounting risks. Viet Nam finds itself squeezed between its two largest economic partners: the United States, the biggest export market and an assertive enforcer of trade rules, and China, its largest source of imports and a necessity in the supply chains that feed Vietnamese factories. Alongside urging from Pete Hegseth for ASEAN nations to jointly oppose Chinese aggression in the South China Sea, the delicate balance Viet Nam has long tried to maintain is being tested more severely than at any point since normalization of relations with Washington. The country’s foreign policy remains anchored in strategic autonomy — cooperating without formally aligning with any single power.

While U.S. officials push harder to prevent Chinese goods from entering American markets through transshipment and include provisions to protect U.S. interests in other South East Asian trade deals, Viet Nam maintains further developing relations with China is a top priority. Simultaneously, strategic ties between Hanoi and Washington are deepening; Viet Nam’s trade model faces a moment of reckoning.

During Trump’s first term, Viet Nam was one of the main beneficiaries of tariffs imposed on Chinese goods. As manufacturers shifted production away from China to avoid penalties, Viet Nam’s trade relationship with the U.S. expanded at a remarkable pace. In the first 11 months of 2025, Vietnamese exports to the U.S. reached $138.6 billion, a 27.3% increase from a year earlier, according to data from the National Statistics Office in Hanoi. Over the same period, Viet Nam recorded a trade surplus with the U.S. of $121.6 billion, up 27.5% year-on-year. Those figures place Viet Nam among the countries with the largest trade imbalances with the U.S., a politically sensitive metric in Washington. The very structure that has made Viet Nam attractive to global manufacturers is now at the center of concerns. 

Yet, crucial details remain unresolved, including the definition of “transshipped” goods, which are subject to a punitive 40% tariff. Drawing a clear line between legitimate manufacturing and tariff circumvention is far from straightforward, particularly in electronics, apparel, and machinery. The ambiguity of those rules has unsettled businesses operating in Viet Nam. It could also slow the inflow of new foreign direct investment at a time when Hanoi is heavily soliciting.

Tran Thanh Hai, Deputy Director General at the Agency of Foreign Trade, warned that Viet Nam has low domestic value added (DVA), and environmental, social, and governance requirements are becoming stricter in major markets, adding compliance costs for those already operating on thin margins. Raising DVA is not about producing more goods, but about capturing more of the value embedded in them. That means moving beyond assembly lines toward deeper participation in supply chains — from increasing education and the creation of skilled laborers, local component manufacturing, and furthering engineering, logistics, and design.

The transition is slow and costly, but without it Viet Nam remains vulnerable to tariff enforcement, shifting investor sentiment, and accusations that its export boom rests on imported value rather than domestic transformation. Vietnamese officials have been trying to reassure Washington that they are committed to enforcing rules of origin, while also pressing for clearer guidelines that would avoid disrupting legitimate trade.

While the U.S. dominates Viet Nam’s export profile, China remains the country’s most important trading partner overall and by far its largest source of imports. In October 2025 alone, Viet Nam imported $16.6 billion worth of goods from China, compared with exports of $9.5 billion, according to data compiled by the Observatory of Economic Complexity. Between October 2024 and October 2025, Vietnamese imports from China surged by more than 22%. These imports are not low-value commodities but key industrial inputs. 

The largest increases came from integrated circuits, sound recordings, and telephones — precisely the components needed to feed Viet Nam’s export-oriented manufacturing sector. Integrated circuit imports alone jumped by more than $800 million year-on-year. Exports to China have also grown, but they remain modest compared with exports to the U.S., underscoring Viet Nam’s asymmetric exposure: it relies on China to produce, and on America to sell.

Besides transshipment, recent trade deals with Malaysia and Cambodia include provisions aimed at reducing cooperation between nations that could potentially hurt U.S. interests. In both agreements, Article 3.3 reads as each respective nation “shall consult with the United States before entering into a new digital trade agreement with another country that jeopardizes essential U.S. interests.” Malaysia’s trade agreement further stipulates under Article 5.3 that if it “enters into a new bilateral free trade agreement or preferential economic agreement with a country that jeopardizes essential U.S. interests, the United States may, if consultations…fail to resolve its concerns, terminate this Agreement.” Cambodia’s Article 5.3 using slightly different language is much to the same end.

Admittedly, Trump is no fan of free trade, with his 2017 appearance at APEC in Da Nang surprising attendees by calling out countries who were not ‘playing by the rules’. Since then, the U.S. has moved further into protectionism while the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and ASEAN-China 3.0 have all come to fruition. The U.S.’ stipulations are meant to act as a barrier to any additional free trade agreements being adopted without American input, even after Trump removed the U.S. from shaping trade policy in Asia through the Obama-era Trans-Pacific Partnership (which gave way to the CPTPP) in 2017, and which Biden failed to pursue thereafter. 

Like Viet Nam, China has a vested interest in free trade agreements for reasons that often intersect. In Viet Nam, free trade keeps tariffs on machinery needed to fuel its growing export business limited and incentivizes foreign direct investment. As the largest trading partner for most ASEAN nations, China gets to position itself as a champion of openness at a time when U.S. trade is particularly unstable, even while potentially damaging other nations through overproduction. 

Given Trump’s engagement with Vietnamese leaders during his 2017 visit and subsequent first term, Viet Nam’s overall better economic performance than its peers, and his family organization’s plans to develop luxury golf and hotel projects near Hanoi, it appears unlikely that Viet Nam would face the same restrictions applied to Malaysia and Cambodia. Yet, much of the Second Trump Administration’s approach to global trade has broken with precedent. Although negotiations with Viet Nam have yet to yield a finalized agreement, whether involving limits on free trade or not, a resolution may not be far off.

Beyond trade, the U.S.-Viet Nam relationship is shaped by a long and painful history. That legacy continues to influence diplomacy today.

During Defense Secretary Pete Hegseth’s November visit to Viet Nam, he acknowledged U.S. aid to Viet Nam as “the foundation” of bilateral strategic cooperation. Although many unexploded ordinance clean up, Agent Orange and dioxin remediation, and health care programs were halted due to USAID cuts, Hegseth pledged continued funding for programs that are deemed absolutely necessary for reconciliation and seen as a buffer against China’s rising power. Despite the U.S. faltering, Viet Nam has continued to repatriate possible remains of U.S. service members. Such moments underscore the depth of trust that has developed between the two countries — trust that Viet Nam hopes will translate into a more nuanced approach to trade enforcement.

Viet Nam’s leadership has set ambitious targets. The government aims for annual economic growth of at least 10% over the next five years, betting that exports and foreign investment can continue to power development even as global trade becomes more uncertain. Given that Viet Nam attracted $31.5 billion in foreign direct investment during the first 10 months of 2025, primarily from Singapore, South Korea, and Japan, Viet Nam’s challenge is not choosing between the U.S. and China, but continuing to engage both without becoming collateral damage in their rivalry. That path is narrowing.

To satisfy Washington, Viet Nam must demonstrate credible enforcement against transshipment and accelerate efforts to increase domestic value added. To maintain stable relations with Beijing, it must avoid policies that appear designed to exclude Chinese firms, sever supply chains abruptly, and constitute provocation in the South China Sea. 

For now, Viet Nam remains a test case for how middle powers can navigate an increasingly polarized global playing field. Its economic prowess this year offers lessons not just for Southeast Asia, but for any country trying to thrive between competing giants. Whether Viet Nam can sustain or diversify its export-led growth without triggering backlash from its most important partners may determine not only its economic trajectory, but its strategic autonomy in the years ahead.