Vietnam’s garment industries must adapt to US tariffs to thrive in 2026

The tariff shock and its immediate impact

On 7 August 2025, the US started to impose a 20% tariff on most fashion and textile (F&T) goods imported from Vietnam. Though lower than the 46% reciprocal tariff first announced by President Donald Trump in April 2025, it remains higher than the tariffs faced by competitors such as Indonesia (19%), Cambodia (19%), and Turkey (15%).

The consequences were swift. From August to September 2025, Vietnamese footwear exports to the US dropped by 27%, while F&T exports declined by 20%, reflecting the high sensitivity of these industries to tariff hikes.

American brands with significant production footprints in Vietnam, such as Nike, which manufactures half of its global footwear output here, are now grappling with increased costs. According to Ms Corinna Joyce, Program Manager of the Bachelor of Fashion (Enterprise) program at RMIT University Vietnam, these costs are being absorbed across the supply chain.

“The costs are partially shared with Vietnamese manufacturers, resulting in squeezed margins, and in some cases passed on to US consumers in the form of higher retail prices,” she said.

To comply with the new regulations and meet sustainability requirements, Vietnam’s F&T sector requires substantial investment in acquiring the latest technology, a process that may take several years to establish.

There is also a risk of job and financial losses. As the US is one of Vietnam’s primary export markets, accounting for roughly 40% of total F&T exports, Ms Joyce pointed out that any significant drop in orders can cause unemployment and reduce the industry's profits.

“If these tariffs persist or increase further, companies that cannot secure enough demand or absorb the cost increases may face downsizing or closure,” she said.

The tariffs add a layer of complexity to global supply chains as well. Vietnam’s F&T industry depends heavily on imported raw materials from China and South Korea. This reliance increases challenges related to compliance with US rules of origin requirements. In some cases, goods with input sourced from China could be classified as "transshipped," subjecting them to even harsher tariffs up to 40%, further threatening the sector’s stability and profitability.

Industry and government response

According to the Vietnam Textile and Apparel Association (VITAS), this year’s F&T export turnover is projected to be 5.6% higher than 2024, reaching US$46 billion. The higher export revenue was achieved despite challenges with reciprocal tariffs and changing requirements from global brands. Speaking at a recent conference, VITAS Chairman Vu Duc Giang attributed this achievement to several initiatives, including the diversification of markets (Vietnam now exports F&T products to 138 markets), the move towards digitalisation, automation, green practices, and supply chain integration.

Sharing from industry representatives and reports offer more insights into the sector’s response and shifting dynamics.

A vertically integrated mill which runs spinning operations, fabric production and garment factories shared that the market has been relatively positive in the past months. However, the rate of increase is not significant as order volume only rises marginally or goes sideways depending on different product portfolios.

“With the vertical setup, we are able to connect our resources to handle changes in supply, demand and trade tensions,” the company’s representative told RMIT researchers.

Import data shows a significant increase in cotton imports from the US this year. The market share of US cotton has risen to 47% in the first eleven months of 2025, a 94% increase compared to the same period in 2024. This significant increase might reflect the impacts of the reciprocal tariffs, which were originally designed to close the trade deficit. However, a consumer report released by Cotton Incorporated shows a major gap between US imports and spending on apparel – a possible indicator of price transfer from brands to consumers. 

On the government’s side, Vietnam’s Prime Minister has called for immediate support for firms affected by the US’s reciprocal tariffs, highlighting the urgent need to protect the F&T sector against rising costs and decreased demand. Government agencies are urged to implement measures that will help businesses adapt, maintain jobs, and safeguard the industry’s long-term competitiveness.

Vietnamese officials have sought to negotiate further favourable conditions through the new US-Vietnam trade agreement framework. According to RMIT Vietnam Professor Rajkishore Nayak, the willingness to lower barriers to US goods, coupled with Vietnam’s established strengths, political stability, a skilled workforce, and ongoing supply chain diversification, has persuaded many foreign brands to keep their operations in Vietnam, despite competitive headwinds.

“For companies already seeking alternatives to Chinese manufacturing, Vietnam’s role as a central node in ‘China Plus One’ strategies has only become more pronounced,” he said.

Strategies for 2026 and beyond

While the immediate impact has been hard on exporters, the bigger question now is how businesses can adapt to this new reality and position themselves for success in 2026 and beyond. As the strategies adopted today will determine the industry’s growth in the years ahead, RMIT researchers recommend comprehensive sector-wide efforts:

Market diversification: Factories need to invest in advanced machinery, minimise expenses, and investigate new market opportunities. This includes diversifying products, digitising operations, increasing green manufacturing, and targeting new markets in Asia, the EU, Oceania, and importantly, the domestic Vietnamese market as a key shock absorber.

Moving up the value chain: By focusing on capacity enhancement from cut-make-trim operations to higher-value activities such as design, branding, and supply chain management, Vietnam’s F&T sector can lessen vulnerability to supply chain disruptions.

Workforce development: Upskilling the workforce for roles in design, product development, and digital supply chain management will support the industry’s move up the value chain.

“Prioritising investment in technology, sustainability, and workforce development, and progressing up the value chain from basic manufacturing to more advanced roles, will enhance resilience,” said Professor Nayak. “Finally, building stronger regional partnerships and negotiating new free trade agreements can help further insulate the sector from future external shocks.”

Story: Ngoc Hoang