With the gradual advancement of Trump's tariff plan, the global textile industry pattern is undergoing unprecedented changes.
Southeast Asia, as an important destination of manufacturing transfer in recent years, is facing new challenges and tests. Vietnam, in particular, is in the spotlight for its textile industry due to changes in the US tariff policy. In the case of Trump's tariff war, what challenges and tests are the textile industry facing in Southeast Asia?
The threat of tariffs directly affects business costs and competitiveness
The Trump administration has imposed high tariffs on solar cells and some textile products, directly affecting Southeast Asian countries' export trade. As an important production base for the global textile industry, Vietnam exports a large amount of its products to the United States. High tariffs undoubtedly increase the production cost of enterprises and weaken the competitiveness of their products in the international market. According to relevant data, in 2024, Vietnam's textile industry exports to the United States have declined significantly, and enterprises are facing huge operating pressure. In addition, Zhao Hong, former justice of the World Trade Organization (WTO) appellate body, pointed out that the US government may further raise tariffs in the future and even take more trade remedy measures, which brings great uncertainty to the medium and long-term planning of enterprises.
The fuzzy judgment of rules of origin increases the difficulty of compliance
An important advantage of Southeast Asian countries to attract foreign investment is its relatively low production cost and geographical location, but the determination of rules of origin has brought new challenges to enterprises. In international trade, the country of origin is usually defined as the last country to undergo a "substantial change", which directly affects the tariff treatment and market access eligibility of products. However, the WTO does not make detailed provisions on "substantial change", and the relevant determination mainly relies on bilateral or multilateral free trade agreements (FTAs). However, many Southeast Asian countries have not signed FTAs with the United States, resulting in differences in the understanding of origin between the two sides, which increases the difficulty of enterprise compliance.
Small and medium-sized enterprises lack of risk awareness and planning
Compared with large enterprises, smes often lack risk awareness and complete plans when they go to Southeast Asia. Jiang Weiqian, chairman of Jiangsu Yuetong Accounting Firm Co LTD, pointed out that many small and medium-sized enterprises lack comprehensive investigation and long-term planning when "going out", and even some business owners make investment decisions only on the spur of the moment. This lack of strategic behavior often leads to frequent "stepping holes" in the actual operation of enterprises. For example, locating a production base in a non-industrial zone and missing out on tax breaks, or going through a lengthy tax refund process when exporting.
Operational challenges arising from cultural differences and talent shortages
Going to Southeast Asia is not only the transfer of production locations, but also the adaptation of cultural differences and management models. Common operational challenges include a lack of long-term planning in corporate structures, and under-utilisation of tax incentives and government support programmes, said Patrick Mok, senior consultant at Cambridge Consultants in Singapore. In addition, there is a relative lack of management talents with an international perspective, and many enterprises find it difficult to find talents who are familiar with the culture of Chinese enterprises and have an international vision and experience in going to sea. This not only increases the management cost of enterprises, but also may bring financial, operational and reputational risks.
Medium - and long-term planning and compliance awareness
In the face of various challenges, enterprises need to make medium - and long-term plans and strengthen risk awareness. At the beginning of the sea, enterprises should pay special attention to the policies and requirements of the producing countries and target market countries in terms of trade compliance. In addition, enterprises should actively make use of professional services, such as seeking help from local customs or professional consulting agencies, to ensure compliance. In terms of talents, enterprises should pay attention to training and introducing management talents with international vision to cope with the challenges brought by cultural differences.
Trump's tariff war has brought many challenges to the textile industry in Southeast Asia, from high tariffs to vague rules of origin, to the lack of risk awareness and planning of small and medium-sized enterprises, and the operational challenges brought by cultural differences and talent shortages.
However, there are challenges as well as opportunities. Only by strengthening risk awareness, making medium - and long-term plans, actively utilizing professional services and cultivating international talents can enterprises remain invincible in the complex international political and economic environment.
(Information source: Global Textile Network)