Vietnam Gains Factories as Tariffs Push Manufacturers Beyond China

A factory boom with rising costs

Vietnam attracted about $38.23 billion in registered foreign direct investment in 2024, with manufacturing and processing leading the flows. By April 2025, newly approved foreign investment had risen 39.9 percent from a year earlier to $13.82 billion, including almost $9 billion for manufacturing and $2.83 billion for real estate. Behind those figures is a shift in where companies make goods, driven by tariffs, customer demands and the search for alternatives to China.

North of Hanoi, warehouses and assembly halls have replaced rice fields in Bac Ninh. Chinese manufacturers are establishing plants there to maintain access to major markets. A Dongguan electronics company making plastic casings moved after customers insisted that shipments avoid higher US duties on China. Similar decisions are reshaping production of clothing, appliances and other consumer goods.

Vietnam offers lower labor costs than China's coastal manufacturing centers, nearby suppliers across the Chinese border and trade agreements opening routes into valuable markets. Northern provinces including Bac Ninh and Bac Giang already host Samsung smartphone factories and suppliers to Apple and Canon. Companies previously centered in Guangdong or Zhejiang are looking toward Hanoi and Ho Chi Minh City.

As of September 6, 2025, the opportunity comes with considerable uncertainty. Washington has announced a potential 46 percent tariff on Vietnamese imports and a negotiating window, while industrial land rents and wages are rising. Many factories still depend on Chinese components. Vietnam is gaining production, but manufacturers must calculate whether tariff savings will cover relocation costs, customs requirements and productivity gaps.

Why Vietnam keeps attracting investment

Vietnam's geography makes it attractive to companies pursuing a China plus one strategy: keeping production in China while adding another manufacturing base. Highways and border gates connect northern Vietnam with suppliers in Guangxi and Yunnan. Parts can cross the frontier by truck, helping factories meet tight delivery schedules without rebuilding every supplier relationship.

The government has upgraded ports and roads, developed industrial parks, and offered tax holidays and other investment incentives. Vietnam has expanded to 416 industrial parks, with plans to add or enlarge hundreds more by 2030. Samsung, LG, Foxconn and Adidas are among the global companies that have chosen the country for additional capacity.

Vietnam also has a large, increasingly skilled workforce. Government training programs and academies within multinational manufacturers aim to improve production quality and speed. Political stability and a growing middle class add reasons for investors to commit for the longer term.

Trade access strengthens the case. Vietnam has 16 active free trade agreements and more than 80 agreements designed to prevent the same income from being taxed twice across borders. Its trade arrangements include the Regional Comprehensive Economic Partnership, or RCEP, and the EU Vietnam Free Trade Agreement, or EVFTA.

The EVFTA lowers import duties over several years and encourages closer alignment with European standards in industries including pharmaceuticals and motor vehicles. For qualifying products, production in Vietnam offers access to the European Union without surcharges faced by many products made in China. Eligibility depends on the product and the agreement's conditions, making the details of production important to the final tariff bill.

Tariffs accelerate moves, then unsettle them

Manufacturers began shifting capacity during the first phase of US trade tensions with China. New tariff threats accelerated that movement. By May 2025, high US duties on Chinese goods were pushing more Chinese companies to move production or assembly abroad, with Vietnam a leading destination.

Some companies moved quickly to preserve American orders. Procurement agents and electronic commerce platforms helped arrange transfers and redirect supply to Vietnamese factories. Temporary pauses affecting tariffs on many Vietnamese goods also encouraged orders to plants around Hanoi and Ho Chi Minh City.

Washington's announcement of reciprocal tariffs included a proposed 46 percent levy on imports from Vietnam, alongside a 90 day window for negotiations. The policy uncertainty makes Vietnam's advantage harder to price: a factory investment lasts for years, while the duty charged on its products can change much faster.

Winnie Lam, a business consultant in Ho Chi Minh City, described the uncertainty facing companies benefiting from the first Trump administration's trade policies:

Vietnam is still benefiting from Trump 1.0, but we do not know for how long.

Chinese companies have continued applying for licenses and renting factory space, according to consultants in Vietnam. Their aim is to spread policy risk while remaining close to established suppliers. Shein has offered temporary incentives to Chinese suppliers moving some production to Vietnam, including higher procurement prices and larger order guarantees. Companies in apparel, toys and electronics are transferring equipment or building new production lines.

How the shift developed

Vietnam's current expansion builds on earlier investments and disruptions. Samsung established major smartphone capacity more than a decade ago, while the pandemic and a later slowdown exposed how closely factory employment follows global demand.

• More than a decade ago: Samsung began building the major smartphone production base that helped establish Vietnam's electronics manufacturing model.
• 2021: Key electronics factories continued operating under strict pandemic health protocols, with some workers living on factory premises to prevent outbreaks.
• 2023: Weaker global demand brought an electronics downturn, with tens of thousands of layoffs reported early in the year.
• 2024: Registered foreign direct investment reached about $38.23 billion, while factory hiring began recovering.
• April 2025: Newly approved foreign investment reached $13.82 billion, up 39.9 percent from a year earlier.
• May 2025: High US tariffs on China were accelerating moves of production and assembly abroad.
• 2025: Hiring continued to recover, FPT planned a chip testing plant to come online, and tariff negotiations added uncertainty to investment decisions.

For workers, the sequence has meant both opportunity and disruption. For manufacturers, it has reinforced the value of maintaining more than one production location while preparing for changes in demand and trade policy.

Electronics leads the manufacturing expansion

Samsung now makes most of its smartphones in Vietnam. Its investment helped establish a production network that other manufacturers could join. Apple suppliers have expanded in Bac Giang and Bac Ninh, making components and assembling products including AirPods and Apple Watches.

Foxconn, Luxshare, Goertek and other Chinese technology companies have invested in northern Vietnam to follow customer orders. Their presence brings factories closer together, allowing manufacturers to find more parts and services locally rather than arranging every shipment from abroad.

China and South Korea remain major sources of displays, optics, batteries and precision components that Vietnam does not yet produce at scale. Access to those inputs helps Vietnamese factories operate quickly. It also adds transport costs, customs paperwork and questions about where a finished product legally originates.

US authorities can examine whether goods passing through another country have undergone enough manufacturing there. A factory using a high proportion of imported components must explain its production steps and meet the relevant customs requirements. Manufacturers are hiring trade lawyers and customs specialists to match their operations with the correct classifications.

Electronics employers are also rebuilding teams after the 2023 downturn. Hiring recovered in 2024 and 2025 as orders improved, increasing competition for skilled employees. Higher wages and bonuses help attract workers, but also raise the expense of running assembly lines.

Chip packaging offers a route into advanced manufacturing

Vietnam is expanding in semiconductor assembly, testing and packaging, activities often called the back end of chip manufacturing. Packaging protects a chip and connects it to the device that uses it; testing checks whether it works properly.

Amkor is building a $1.6 billion campus in Vietnam intended to become its largest and most advanced site. Intel operates its biggest back end facility near Ho Chi Minh City. South Korea's Hana Micron is expanding investment in chip packaging, while Vietnamese company FPT plans a testing plant coming online in 2025.

Assembly and packaging require substantial training and equipment, but less capital than fabricating chips on wafers. Wafer fabrication requires exceptionally clean rooms and extreme precision. Vietnam can expand packaging and testing using imported tools and trained workers while its capacity for more complex chip production develops.

Vietnam's share of the global assembly and packaging market could rise from roughly 1 percent to nearly 8 or 9 percent by the early 2030s if planned investments proceed. Those figures imply a share around eight to nine times its starting level. Parts of the US CHIPS Act investment program are being directed toward partnerships with friendly countries, potentially supporting that growth.

The government aims to have at least six semiconductor fabrication plants by 2050. Vietnam remains a small participant in this earlier stage of chip production, and domestic foundry plans will take years to materialize. The nearer opportunity lies in the assembly, packaging and testing operations already attracting investment.

Clothing, toys and consumer goods follow

Vietnam has long produced garments and footwear for brands including Nike and Adidas. Chinese factories facing higher US tariffs have increasingly used Vietnamese cutting, sewing, finishing and assembly capacity to complete orders. Electronic commerce platforms and logistics agents have helped redirect supply chains.

Fabric and trims still frequently come from China. Some trade agreements require qualifying yarn or fabric to originate within participating countries before finished clothing receives preferential duties. Cutting and sewing imported cloth may therefore produce a different tariff outcome from making yarn and weaving fabric locally.

Toy production shows how quickly companies are trying to adjust. MGA Entertainment, a major supplier to Walmart and Target, plans to move 40 percent of its manufacturing to India, Vietnam and Indonesia within months. About 77 percent of toys bought in the United States are currently made in China, leaving the industry heavily exposed to tariffs on Chinese goods.

Companies warn that prices could rise for toys still made in China. Vietnam is one of several alternative destinations and has attracted toy manufacturers to industrial parks near its two major cities. Its experience in plastics, textiles and electronics assembly provides skills that can be combined in modern toys.

Consumer goods companies face the same practical choice as electronics manufacturers: move equipment from China, build fresh capacity, or operate in several countries. Customer pressure can speed up the decision, while the availability of materials and trained workers determines how quickly production can begin.

Cheaper labor does not guarantee cheaper production

Industrial land rents in Vietnam are rising by roughly 6 percent a year and can exceed prices in mainland China. Wages are increasing by 6 to 7 percent annually as employers compete for operators and supervisors. Those increases reduce the savings companies expect from lower starting labor costs.

BW Industrial, a major industrial property developer, has noted that relocation costs surprise many operators. Workers may earn less than counterparts in China, yet output per worker can also be lower while teams learn processes and factories settle into production. Training, machinery and adjustments to logistics add further expenses.

Project approvals can be complex, land acquisition takes time, and infrastructure development is not always coordinated across regions. Vietnam's land tenure system differs from China's, putting more decision making in developers' hands and potentially lengthening project schedules.

China retains deeper networks of suppliers and faster access to specialized materials. Vietnamese factories can import those materials relatively quickly, but each shipment brings transport costs and customs administration. Companies making origin claims also need records showing what was imported and how it was used.

Manufacturers that moved under customer pressure have consequently faced squeezed profit margins. Many expect tariff advantages and market access to offset the higher costs once production grows. Others retain parallel lines in China to serve Chinese customers and preserve access to its extensive supply chain.

Vietnam and China remain connected

Vietnam has become China's largest trading partner within the Association of Southeast Asian Nations, or ASEAN, with bilateral trade described as nearing $1 trillion in 2024. Much of Vietnam's export growth depends on imported Chinese inputs, particularly in electronics and textiles.

Research by the Carnegie Endowment has highlighted the large share of foreign value contained in Vietnam's gross exports. An exported product's full selling value is counted in export figures even when some components were made abroad. The Vietnamese contribution comes from the work and materials added inside the country.

US scrutiny of transshipment focuses on goods routed through another country without sufficient local manufacturing. Rules of origin determine where a product qualifies as originating and whether it meets a trade agreement's conditions for preferential duties. The applicable requirements vary by product and trading arrangement.

In electronics, customs assessments can consider the manufacturing transformation, the value added in Vietnam and the tariff classifications of inputs and finished products. In clothing, requirements concerning yarn and fabric can determine eligibility. A company's factory location and its sourcing decisions therefore both affect access to lower tariffs.

As final assembly expands, suppliers further down the production chain are following. Northern Vietnam benefits from nearby Chinese and Korean suppliers, while central and southern provinces attract smaller component manufacturers and logistics providers. These clusters can broaden local capacity and reduce the distance between production stages.

Factory growth reshapes work and local markets

The Bac Ninh and Bac Giang manufacturing corridor has attracted hundreds of thousands of workers, supported small businesses and increased household incomes. The 2023 layoffs also showed how quickly that income can be interrupted. Many affected workers, especially women, took temporary service jobs before returning as factories resumed hiring.

Employers have offered higher wages, bonuses for joining and transportation stipends to recruit experienced staff. Vietnam's young workforce and high female participation remain strengths for industries requiring large numbers of workers. Workers in factory towns are also learning Mandarin to pursue opportunities within Chinese owned suppliers.

Domestic technology companies and universities are expanding programs in electronics, robotics and quality management. Better training can improve productivity and help Vietnamese suppliers compete with foreign owned manufacturers.

A growing middle class gives investors a reason to produce for Vietnamese customers as well as export markets. Projections point to rapid middle class growth through 2030. Chinese automakers including Shineray Motors and Geely are expanding local assembly and adapting products to Vietnamese preferences, making the country both a production base and a competitive consumer market.

Companies prepare for several kinds of risk

Vietnam's labor force is a fraction of China's. Carnegie Endowment research suggests it can absorb some production leaving China, rather than the entire flow. Manufacturers are consequently spreading operations across several countries, with Vietnam serving as a major location within a broader network.

One practical model places final assembly and testing in Vietnam, brings key suppliers nearby where possible, and keeps complex earlier production stages in China, South Korea or elsewhere until Vietnamese capacity develops. Companies also maintain alternative supply lines, moving from delivery systems built around immediate need toward holding options for disruption.

Tariffs, tougher origin requirements and scrutiny of suspected transshipment remain central risks, particularly for textiles and electronics. European and US attention to supply chain transparency and environmental standards is also increasing the need for audits and reporting.

Manufacturers can prepare by developing local suppliers, training workers and planning product sourcing around the rules of their target markets. Checking each product's list of materials early can avoid expensive changes just before shipment. Maintaining backup supply lines costs money, but gives companies options when policy changes within a quarter.

The tariff outcome for Vietnam remains unsettled, including the proposed 46 percent levy and the negotiating process. Investment is continuing despite that uncertainty. Its returns will depend on production costs, worker skills, supplier development and the trade terms factories face when their goods reach customers.

What to Know

• Vietnam registered about $38.23 billion in foreign direct investment in 2024, led by manufacturing and processing.
• Newly approved foreign investment reached $13.82 billion by April 2025, up 39.9 percent from a year earlier.
• Tariffs on China are encouraging factory moves, while a proposed 46 percent US tariff on Vietnam adds uncertainty.
• Electronics leads the expansion, with chip assembly, testing and packaging attracting major investments.
• Clothing and toy manufacturers are adding Vietnamese capacity, often while continuing to import Chinese materials.
• Industrial rents are rising roughly 6 percent annually, and wages by 6 to 7 percent, putting pressure on savings.
• Vietnam's trade agreements offer opportunities, but products must meet the applicable origin requirements.
• More jobs and investment are reshaping factory towns, while companies retain production across several countries.