By Mickaël Driol *

As global trade tensions intensify, the risk of a full-scale trade war has become more than just a hypothetical scenario.

The United States has escalated its protectionist stance, implementing new tariffs and investment restrictions that have triggered retaliatory measures from key trading partners.

While some governments are pushing for de-escalation through diplomatic negotiations, others are taking a more aggressive approach, raising the prospect of a prolonged trade conflict. The coming months will determine whether the world edges toward a managed realignment of trade relations or a destabilising tariff war.

Recent weeks have seen a rapid deterioration in global trade relations. In February 2025, US President Donald Trump announced a new 10 per cent tariff on Chinese imports, adding to existing levies imposed during his first term.

China responded by restricting exports of rare earth materials and tightening access to critical industries for American firms. These measures come as tensions over technology restrictions continue to rise, with the US blocking high-end semiconductor sales to Chinese companies.

Beyond China, the US has also expanded its trade actions against key allies.

Washington imposed reciprocal tariffs on countries that have introduced digital services taxes targeting US tech giants, directly affecting the European Union, the United Kingdom, Turkey, and Canada. While European leaders have expressed strong opposition, responses have varied.

France and the UK have sought negotiations, while Turkey has taken a more confrontational stance, threatening countermeasures. Meanwhile, Canada has experienced a surge in consumer boycotts of American products, resulting in an estimated US$2.1 billion drop in US tourism revenue and potential job losses exceeding 14,000 in the US travel sector.

Trade tensions are also being influenced by geopolitical shifts. Trump’s recent meeting with Ukrainian President Volodymyr Zelensky focused on military aid, but his renewed criticism of NATO and EU trade policies has raised concerns about potential economic rifts between the US and Europe. Additionally, China’s strengthening ties with Russia and Iran could create alternative trade blocs that shift global economic power dynamics.

A prolonged tariff war would have severe economic repercussions.

The International Monetary Fund has warned that sustained trade conflicts could cut global GDP growth by 1.2 per cent, increasing the risk of a global recession. Tariffs would raise input costs for businesses, leading to higher consumer prices and worsening inflation in major economies, including the US and Europe.

The impact on supply chains would be profound. The new US tariffs on China could accelerate diversification efforts, with companies shifting production to alternative locations like Việt Nam, India and Mexico. However, this shift comes with costs, as businesses face higher operational expenses and increased regulatory uncertainties.

Financial markets are already reacting to trade uncertainty. Stock markets have experienced increased volatility, while currency fluctuations and capital flight from emerging markets are creating additional risks. If trade tensions escalate further, bond sell-offs and a slowdown in foreign direct investment (FDI) could follow, further dampening economic growth.

Việt Nam, a country deeply integrated into global supply chains, stands at a critical juncture. Việt Nam has been a major beneficiary of past US-China trade tensions, attracting record levels of foreign investment as companies sought alternatives to Chinese manufacturing, pushing its trade surplus with the United States to $104.6 billion in 2024.

However, the expansion of US tariffs to other Asian economies could put Việt Nam’s key industries under strain. The country’s electronics industry, which accounts for over 30 per cent of total exports, is particularly vulnerable.

Electronics exports reached $18.87 billion by April 2024, reflecting a 15.8 per cent year-over-year increase, making this sector crucial for economic stability. Việt Nam has set an ambitious target for its hardware and electronics exports, aiming to reach $160 billion by the end of 2025, which would represent a 20.8 per cent increase from 2024's figures.

Companies like Samsung, Intel, and Apple have invested heavily in Việt Nam’s manufacturing sector, but new US tariffs on Asian tech exports could disrupt production and impact revenue. Additionally, China’s restrictions on rare earth exports could create supply chain bottlenecks for Việt Nam’s growing semiconductor industry.

The sector, already affected by US-China chip restrictions, may experience further slowdowns as companies struggle to secure critical materials.

The textile and apparel sector, valued at $37 billion in 2024 and growing by 11.2 per cent from the previous year, remains another key area of vulnerability. The US and EU account for nearly 60 per cent of Việt Nam’s textile exports, but if Washington expands tariffs on Asian textiles, Việt Nam could face higher trade barriers, particularly as Chinese manufacturers have already been hit with US duties.

Additionally, Vietnamese exporters must now comply with the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes environmental costs on carbon-intensive imports. Companies failing to meet new sustainability standards could lose market access, forcing major investment in green production technologies.

Việt Nam’s agriculture and seafood exports have been booming, reaching $62.4 billion in 2024, an 18.5 per cent increase from 2023, with a record $18.6 billion trade surplus (up 53.1 per cent). The country is a major exporter of seafood with the US and EU as key buyers.

However, these sectors face growing regulatory risks. The US has tightened food safety regulations, increasing scrutiny on Việt Namese seafood exports. Additionally, China’s export restrictions on fertilisers and agricultural chemicals are driving higher production costs, which could impact Việt Nam’s global competitiveness. The EU’s stricter environmental policies on overfishing and carbon emissions further complicate the outlook.

To mitigate the risks of an escalating trade war, Việt Nam must adopt a multi-pronged strategy that enhances economic resilience. The country needs to reduce reliance on low-cost assembly and shift toward high-value production. Encouraging investment in domestic supply chains and high-value manufacturing will reduce dependency on foreign inputs.

In electronics, attracting investment in semiconductor design and production will be critical to reducing reliance on imported components. In textiles, accelerating sustainable manufacturing practices will ensure compliance with new trade regulations.

Similarly, the agricultural sector must invest in food safety and traceability measures to comply with increasingly stringent import standards, particularly those imposed by the US

While free trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Việt Nam Free Trade Agreement (EVFTA) provide market access advantages, Việt Nam must deepen trade ties with emerging economies in Africa, Latin America, and the Middle East to reduce dependence on the US and EU. Strengthening regional economic integration within ASEAN will also help mitigate external trade risks.

At the same time, diplomatic engagement will play a decisive role in shaping Việt Nam’s trade outlook. Proactive negotiations with Washington and Brussels will be necessary to secure exemptions from punitive tariffs and ensure continued market access for key industries. Maintaining a stable and transparent regulatory environment will also be essential in sustaining investor confidence, particularly as global supply chains undergo realignments.

As trade tensions continue to reshape the global economy, Việt Nam’s trajectory will depend on its ability to adapt. Protectionist policies and supply chain disruptions pose significant challenges, but they also create new opportunities for economies that act strategically. By embracing diversification, investing in high-value industries, and strengthening diplomatic and trade partnerships, Việt Nam can position itself as a key player in the shifting global trade order.

The months ahead will be crucial in determining whether the country can navigate these challenges while capitalising on emerging opportunities in an increasingly complex economic landscape. VNS

* Mickaël Driol, CEO of Mekong Partners, is a cross-border investment expert and board advisor with 17+ years in China, Việt Nam, and APAC. He advises Fortune 500 companies, private equity firms, and institutional investors on FDI, M&A, ESG, and corporate strategy. A two-time founder, he built and exited two Chinese tech firms through profitable acquisitions. He has worked with PwC, KPMG, Nasdaq, the WTO, and Intel, offering insights on global trade and sustainable investments. Featured in Bloomberg and CNBC, he also mentors CEOs, supports Vietnamese SMEs, and speaks at industry events. He holds three MBAs and certifications in AI and digital strategy.