UOB expert: Diversifying value chains is a key determinant for Vietnam's trade

Vietnam is likely to benefit from the restructuring of global trade, but its ability to move higher in regional and global value chains will depend on diversification of export markets and upgrading of value-chain participation, according to United Overseas Bank (Singapore).

Global trade remains resilient, but risks persist

Speaking at the “The Year Ahead 2026” event on the morning of 10 April, Suan Teck Kin, Global Market and Economic Research Director at UOB, said world goods trade stayed resilient in 2025 despite tariff pressures, including the “Liberation Day” tariff announcements in April.

He attributed the resilience to both short-term and structural factors: corporations accelerating deliveries and building inventories to reduce disruption risk; strong AI-related demand supporting semiconductors, servers and data-center infrastructure; and a relatively positive macroeconomic backdrop in major economies such as the United States, Europe and China.

Data cited by Suan showed global export volumes rose about 2.9% in 2024, compared with a long-term average of roughly 1.5% during 2020–2022.

2026 outlook: moderate growth with geopolitical and energy risks

For 2026, the World Trade Organization (WTO) projects global trade growth of around 1.9%, close to the long-run average but below 2025. Suan noted that prolonged geopolitical tensions in the Middle East and high energy prices could reduce global trade growth by up to 0.5 percentage points, mainly through higher transport costs, disruption to air and sea routes, and weaker travel and trade demand.

At the same time, AI-related demand is expected to remain an important growth pillar.

Supply-chain shifts reshape trade patterns

A key structural trend highlighted by Suan is the changing composition of US imports since 2018, reflecting more diversified supply chains. Based on the latest US Census data (as of early 2026), Mexico has become the largest supplier to the US, representing about 16.9% of total imports. ASEAN accounts for 15.7%, the European Union 14.7%, and Canada 11.2%.

In contrast, China’s share of US imports has fallen to around 7.8%, from well over 20% before 2018. Suan linked the shift to tariff effects, geopolitical factors and corporate “China+1” strategies that have encouraged production networks to relocate toward Southeast Asia.

While the trend creates opportunities for ASEAN economies including Vietnam, it also raises the competitiveness bar by requiring higher productivity and more value addition.

China’s trade rebalancing increases ASEAN’s role

Suan also pointed to changes in China’s trade structure. By 2025, ASEAN became China’s largest trade partner at about 16.6% of total trade, ahead of the EU at 13% and the US at 8.8%. He said trade with Asian partners is becoming increasingly central as the US role appears less stable than before 2018.

Vietnam currently accounts for about 4.7% of China’s total trade, which Suan said signals deeper integration into regional production networks and supply chains. He added that China is gradually repositioning itself not only as a final export hub but also as a core link in Asia’s production and trade ecosystem.

Tariff exposure remains a key constraint for Vietnam

On Vietnam’s tariff exposure, Suan said the US remains Vietnam’s largest export market, accounting for around 32% of total exports in 2025—roughly equal to the combined exports to the next five largest markets. This concentration makes Vietnam particularly vulnerable to tariff measures and trade restrictions from the US.

He noted that recent US Supreme Court decisions related to the International Emergency Economic Powers Act (IEEPA) have provided legal clarity, but tariff-related challenges for exporters persist.

Temporary Section 122 tariffs are set to expire by mid-2026, although sector- or product-specific tariffs may still be imposed through other provisions, including Sections 201, 232, 301 and 308. In this environment, Suan said export-market diversification is “no longer optional” but a strategic imperative.

He urged Vietnam to fully leverage its 16 free trade agreements, including CPTPP, RCEP and EVFTA, and to expand into fast-growing markets in the Middle East, Africa, Latin America and selected parts of Europe.

Electronics and semiconductors offer a pathway to higher value

Industry outlook by sector, Suan said, shows Vietnam has a solid base in electronics and semiconductors that can support upgrading. Vietnam ranks eighth globally in electronics exports and hosts more than 170 foreign-funded semiconductor projects, mainly in chip design and packaging.

These strengths, he argued, can help Vietnam move into higher-value segments such as advanced packaging (OSAT), precision components, electronic materials and tooling, as well as AI applications in industrial use and automation in manufacturing and logistics.

Suan compared Vietnam’s potential trajectory with Penang’s multi-decade development toward becoming a semiconductor hub, arguing that Vietnam’s next growth phase depends on building an ecosystem, upgrading skills and retaining more value addition domestically rather than relying solely on assembly-oriented FDI.

UOB’s 2026 view: cautious optimism, inflation risks rising

For 2026, Suan said UOB remains cautiously positive on Vietnam. While GDP growth signals may soften, activity is supported by manufacturing, construction and services, along with a rising pace of exports and FDI as global supply chains continue to diversify.

However, he warned that inflation risks are mounting due to spillovers from energy prices. As a result, UOB has cut its growth forecast for 2026 and expects the State Bank of Vietnam to maintain stable monetary policy throughout 2026.