Hanoi [Vietnam], September 3: Responding to Thanh Nien on the sidelines of the Fitch On Vietnam 2025 event recently held in Ho Chi Minh City, Mr. George Xu (photo), Director of Sovereign Credit Ratings for the Asia-Pacific region of Fitch Ratings, gave comments on the impact of US tax policies on economies in the region.
The impact has only just begun.
How do you assess the impact of US President Donald Trump's reciprocal tax policy on the Asia-Pacific economy?
We have recently seen the US announce reciprocal tariffs on most Asian economies. And most of them are subject to tariffs of around 20%, including Vietnam , some neighboring countries such as Thailand, Malaysia and even Cambodia. The Philippines has a rate of 19%. The difference between 20% and 19% does not make a significant difference. Only a few small economies such as Myanmar and Laos have a tariff of 40%.
But overall, the 20% tariff is still higher than what we had forecast. Even in 2024, we only forecast the average tariff rate that the US will apply to Vietnam is just under 4%, specifically 3.9%. So the US tariff increase has some negative impacts on Asian economies. This impact started in the second half of this year, so recently through shipping activities, we have seen that the very strong goods exports in the first half of this year have gradually decreased. And some leading indicators show that export orders, new export orders may also be weaker. So that is consistent with our assumption that the general disadvantages will gradually increase across the region in the second half of this year and also in 2026.Some economies will loosen monetary policy.
How does that affect the economic and financial policies of economies in the region?
I think if countries want to respond to higher US tariffs, they would want to enact or adopt some support measures, right? Maybe fiscal or monetary easing.
And I think with the current tariffs of around 20% for most Asian economies , we don't see Asian exporters losing relative competitiveness relative to other countries, simply because the difference in US tariffs with these countries seems to be negligible at the moment. So the US tariffs issue is not leading to corporations having to change their supply chains or manufacturing operations away from their current countries, because that would increase their costs. For foreign investors, they also need to consider where to invest, because there are still many uncertainties, including order processing and how transit provisions, such as the US 40% tariff on transshipment goods, will be enforced. So basically, I think some Asian economies will ease monetary policy, and if there is no inflation or other pressure, they may cut their policy rates.
For example, we expect Indonesia, Thailand and the Philippines to cut interest rates in the coming quarters. We also expect some Asian countries to increase fiscal stimulus to support their economies. This will also lead to a possible increase in fiscal deficits. However, we have not seen any significant changes in fiscal stimulus, although in some countries, such as Indonesia, there may be some risk of fiscal slippage despite the country's latest budget plans reaffirming fiscal discipline. Of course, this is just our assumption. For Vietnam , your economy and monetary policy framework are also heavily dependent on credit growth targets. More recently, the Vietnamese government has reaffirmed its commitment to achieving a growth target of over 8% this year. This will lead to higher financial leverage in an already high economy. In our view, this could also continue to place some constraints on credit ratings going forward.
Expectations for government reform
So can you give a more detailed assessment of Vietnam 's economy ?
As I mentioned earlier, the Vietnamese government remains very committed to achieving growth rates above 8% this year and at least 10% starting from 2026. The current plan is largely driven by higher credit growth targets for the entire system. This poses challenges that could result in less efficient credit allocation and could also lead to increased risks in banks if credit growth falls into less productive sectors or financially unsound businesses.
We currently maintain Vietnam at BB+ with a stable outlook as we see a balance between upside and downside risks in the current period. Vietnam is supported by steady FDI inflows and very favorable demographic trends, as well as continued expansion of the services sector and urbanization. And last but not least, the recent reform initiatives undertaken by the government could have a positive impact. We see a more balanced risk profile, but we do need to keep a close eye on it.
On the positive side, I think the government's reform initiatives could yield some benefits over time if they are implemented as intended. And on the downside, we need to look at the rapid increase in leverage in the economy as a whole, and whether that poses any potential risks to the financial stability of the economy as a whole.
Source: Thanh Nien Newspaper
