Trump Tariffs: Signals of the Dong

On Liberation Day, Trump launched his 46% reciprocal tariff measure by surprise. Everyone was caught off guard by the magnitude and aggressiveness of these tariffs, which seemed to be established on the raw size of trade deficits rather than the real, tangible tariffs that these countries levied on the US. Vietnam was caught in the crosshairs, being exacted with the one of the highest tariffs of 46%. This is particularly damaging for a couple of reasons. Firstly, Vietnam is highly dependent on US as a trading partner. Secondly, Vietnam’s economic transformation is still in the process—it still does not have the capacity to achieve high economic growth through domestic self-reliance and the exportation of high value-add exports. Thirdly, the sweeping scope of Trump’s trade restrictions eliminates the possibility of trade diversion to Vietnam—a key dynamic that had previously boosted its exports during the 2018 U.S.–China trade war.

Immediate Market Response: A Surprisingly Mild Reaction

Following the announcement, the Vietnamese dong dropped by nearly 1%—a move that, while noticeable, was muted relative to the severity of the shock. This raises key questions: Was this market reaction justified? What does it signify?

Fig 1.1. The Dong depreciated by 0.88% to date following Trump’s reciprocal tariffs; seeming understatement compared to two massive waves of depreciation in February 2025 and October 2024. Source: LSEG Workspace;

CORRECTION: SHOULD BE VND/USD INSTEAD OF USD/VND RATE.

Compared to historical catalysts, the change in the VND/USD spot rate appears minor. The dong operates under a managed float, and because the announcement occurred late in the week (Friday, Vietnamese time), the State Bank of Vietnam (SBV) had limited opportunity to respond with direct FX market intervention. The only notable monetary policy response was a sudden surge in Repo Operations on April 4, which can be interpreted as a prelude to FX intervention. These injections serve to stabilize the financial system by offsetting the liquidity drain that would occur if the SBV began purchasing VND (i.e., selling USD) to defend the exchange rate, which might happen in the weeks to come. As such, the observed depreciation reflects an organic, early-stage, market-driven reaction—not one distorted by policy action.

Fig 1.2 Sudden increase in Repo Activity as the Central Bank of Vietnam seeks to increase M2 supply for a defence of the Dong. Source: State Bank of Vietnam

A few interpretations may account for the surprisingly limited drop in the dong:

1)      Tariffs were already priced in:

This appears unlikely. Both anecdotal evidence and official policies policies contradict this view. The author has overhead from his professor—who has ties with Vietnamese government officials—that the country did not anticipate higher tariffs, having pursued multiple diplomatic gestures to maintain strong bilateral ties. These included an expedited licencing process for Musk’s Starlink Service, and allowing the development of a $1.5 billion USD golf course development by The Trump Organization. Such diplomatic efforts were clearly aimed to amortize any sort of reciprocal tariffs as the current administration seeks to pursue its 8% economic growth target. On the policy side, High-level U.S.–Vietnam communications in recent days have also pointed toward a baseline expectation of a 0% tariff environment.

2)      Investors are awaiting clarity:

There is merit to this. Market participants may be adopting a “wait-and-see” approach, given Vietnamese officials’ vocal engagement in negotiations and Trump’s signals of willingness to deal. Notably, Vietnam was the first country to reach out suggesting moderations to the trade barriers, and Trump has also agreed to meet in person for talks.

3)      Vietnam’s equity market fundamentals remain attractive:

Strong risk-adjusted returns in Vietnamese equities could be anchoring FX sentiment. This is reinforced by the mild pullback in foreign capital, with Vietnam-dedicated funds not underperforming disproportionately compared to global indices like the S&P 500 and FTSE 100 index. Investor pullback in Vietnam therefore seems to be on par with the global equity benchmarks.

Fig 1.3. Vietnam-focused funds have performed relatively on-par with a broader decline in major global equity indices. Source: LSEG Workspace

4)      Market lag and frictions:

The sudden nature of the shock likely delayed institutional portfolio reallocation. Investors must contend with information lags, transaction costs, and mandate constraints, especially in frontier markets like Vietnam. This opens up a potential mispricing window—a golden opportunity for emerging-market-focused hedge funds. With a 46% tariff in place and negotiations unlikely to yield a significant rollback, pricing appears driven more by inertia than fundamentals.

Relative Underperformance: A Cross-Country Framing

Fig 1.4: Relative performance of the Vietnamese Dong compared to 8 other countries that suffered the brunt of Trump tariffs. Source: LSEG Workspace.

If we compare the VND to currencies of other large trade-surplus countries with the U.S., the picture shifts. While VND’s depreciation may appear modest in historical terms, it stands out sharply in relative terms.

Vietnam was the only country in the sample set (including South Korea, Taiwan, Japan, India, China, Mexico, and Canada) whose currency depreciated against the U.S. dollar after the tariffs. Even economies with significant trade exposure—like South Korea and Taiwan—maintained relative stability due to more diversified, high value-add export sectors and robust financial systems. Meanwhile, India and China enjoy massive internal demand buffers, while Mexico and Canada are protected under USMCA, insulating them from this tariff wave.

The performance of the Vietnamese dong is striking when viewed through two distinct lenses.  It sits at the intersection of delayed repricing and targeted vulnerability. Among countries with similarly large trade surpluses with the U.S., only Vietnam has faced both disproportionate tariff exposure and a lack of defensive buffers—factors that contributed to the dong’s relative underperformance. Yet from an internal, macroeconomic standpoint, the market reaction appears partial. The dong has weakened more than its peers, but arguably not enough given the scale of the shock. Looking ahead, the trajectory remains uncertain: clarity and successful negotiation may lead to tariff relief and stabilization, while a persistently unfavorable tariff regime could intensify depreciation pressures. Put simply, Vietnam’s dong is being held in place for now—on “macro hold”—but it's already being tagged by the market as the weakest link among major U.S. trade surplus countries. The road ahead looks challenging.