What the May 2026 deficit and the post-SCOTUS tariff regime mean for US importers and exporters
Vietnam reported a trade deficit of $5.21 billion in May 2026 the largest monthly shortfall since the country began publishing trade data in 1990. The result was a sharp reversal from the $0.62 billion surplus recorded a year earlier, and it badly overshot the consensus forecast of a $3.98 billion gap. The swing was driven not by weak exports, which actually grew 18.0% year-on-year to a record $46.93 billion, but by an even faster 33.8% surge in imports to $52.14 billion as global raw-material prices climbed amid a prolonged US-Iran conflict.
For US companies, the headline matters less than what sits behind it. Vietnam is now among the largest single sources of the US goods-trade deficit, and a record import bill that pressures the dong and Vietnam’s foreign-exchange reserves arrives at the same moment the US tariff regime has been thrown into flux. In February 2026 the Supreme Court struck down the reciprocal tariffs, only for the administration to re-impose a broad surcharge under Section 122 of the Trade Act of 1974 a measure with a hard 150-day statutory clock. The combination of a weakening dong, an unsettled tariff base, and an unfinished US-Vietnam framework deal creates both opportunity and acute timing risk for importers and exporters alike.
The numbers behind the record deficit
Vietnam’s May trade data marked a structural break from the export-led surpluses that have defined the economy for most of the past decade. Exports rose 18.0% to a record $46.93 billion, a genuinely strong print that reflects resilient global demand for Vietnamese electronics, machinery, footwear and apparel. But imports jumped 33.8% to $52.14 billion, outpacing exports by a wide margin and producing the $5.21 billion monthly deficit. The miss against the $3.98 billion consensus was material roughly a 30% overshoot signalling that the import surge caught even close observers of the Vietnamese economy off guard.
The year-to-date picture confirms the trend is not a one-month anomaly. Across the first five months of 2026, Vietnam ran a cumulative deficit of $13.8 billion, with exports up 19.5% to $215.66 billion and imports up 30.8% to $229.46 billion. In other words, both sides of the ledger are growing quickly, but the import side is compounding roughly eleven percentage points faster a gap that, sustained over a full year, would erase the trade surpluses Vietnam has relied on to fund its currency stability and reserve accumulation.
The composition of the import surge is the key to interpreting it. Vietnam is an assembly-and-re-export economy: it buys components, fabrics, plastics, steel and energy, transforms them, and ships finished goods abroad. When the dollar cost of those inputs rises as it has during the US-Iran conflict that has lifted oil and broader commodity benchmarks the import bill inflates even if physical volumes are flat. A meaningful share of the deficit therefore reflects price, not a collapse in competitiveness. That distinction matters for US buyers: higher Vietnamese input costs will feed into landed prices on finished goods over the coming quarters.
Why a record deficit pressures the dong and reserves
A persistent goods deficit weakens a country’s balance-of-payments position because it must source more foreign currency to pay for imports than it earns from exports. For Vietnam, that pressure lands on the dong and on the State Bank of Vietnam’s (SBV) reserve buffer. The dong has already printed record lows near 26,400-26,436 per US dollar during 2025, and analysts project a further 4-5% depreciation across 2026. Reserves, estimated at roughly $70-80 billion, sit well below the 2022 peak near $109 billion, leaving the SBV with room to smooth volatility but not to defend an arbitrary level indefinitely import cover has at points fallen near 2.5 months, below the three-month comfort threshold.
For US trade counterparties, the currency channel cuts two ways and is explored in detail below. A weaker dong makes Vietnamese exports cheaper in dollar terms, partly cushioning US importers against tariff increases; but it also raises the local-currency cost of the imported inputs Vietnamese factories depend on, and it makes US exports to Vietnam more expensive for local buyers.
Why this matters disproportionately for the US
Vietnam is not a peripheral trading partner for the United States. It shipped roughly $136.6 billion of goods to the US in 2024 and has, over the past several years, vaulted into the top tier of US import sources a direct beneficiary of the China-plus-one diversification that accelerated after 2018. Much of what Vietnam exports to the US is, in economic substance, partially Chinese: components and sub-assemblies imported from China, finished in Vietnam, and re-exported. That structure is exactly why Vietnam’s import bill and its US export surplus tend to move together, and it is why the US negotiated a 40% transshipment penalty into the framework rather than relying on the headline rate alone.
The practical consequence is that US importers are unusually concentrated in Vietnamese supply for several consumer categories. Vietnam is now among the largest foreign suppliers of footwear and apparel to the US market and a major source of wood furniture and electronics assembly. When Vietnam’s cost base rises whether through commodity-driven input inflation, a defensive interest-rate response from the central bank, or tariff stacking at the US border there are few drop-in alternatives at comparable scale and quality. India, Indonesia, Bangladesh and Mexico each absorb some redirected volume, but none can replace Vietnam wholesale, and each carries its own tariff schedule and capacity ceiling. That lack of substitutability is what converts Vietnam’s macro data into a direct margin question for US buyers.
The US tariff backdrop: from Liberation Day to Section 122
The tariff environment facing Vietnamese goods has been remade three times in fourteen months, and understanding the sequence is essential to pricing risk today. The first shock came in April 2025, when the administration’s reciprocal tariff program imposed under the International Emergency Economic Powers Act (IEEPA) initially threatened Vietnam with a headline rate as high as 46% before negotiations brought it down. On July 2, 2025 the two governments announced a framework under which the US would hold a 20% baseline reciprocal tariff on Vietnamese goods while applying a 40% rate to transshipments goods routed through Vietnam to disguise Chinese origin. The framework text was released on October 26, 2025, with negotiations on the detail continuing.
The second and most consequential shock came on February 20, 2026, when the Supreme Court ruled 6-3 that IEEPA does not authorize the President to impose tariffs, striking down both the reciprocal tariffs and the fentanyl-related trafficking tariffs as an unconstitutional exercise of Congress’s taxing power. Within hours, the administration responded by invoking Section 122 of the Trade Act of 1974, imposing a 10% across-the-board tariff effective February 24, 2026 quickly raised to 15% to backfill the revenue and leverage lost when IEEPA fell.
The critical feature of Section 122 for planning purposes is its hard 150-day statutory limit. Unlike IEEPA or Section 301, Section 122 cannot be extended unilaterally; sustaining the surcharge beyond roughly mid-July 2026 would require Congress to act or the administration to pivot to another authority such as Section 301 or Section 232 investigations. This is the precise sense in which the US is renewing tariff risk for Vietnam: the current rate base is legally temporary, and what replaces it a negotiated framework rate, a new statutory tariff, or a cliff-edge expiry is unresolved.
Where Vietnamese goods stand today
On a current-policy basis, the average applied US tariff on Vietnamese goods is approximately 15.91%, against 2024 US imports from Vietnam of roughly $136.6 billion. But that average masks enormous dispersion by product. The table below shows the applied rate across Vietnam’s largest export chapters to the US.
Two patterns stand out. First, the highest-volume category electronics and electrical equipment carries the lowest effective rate, because many flagship products such as smartphones and certain semiconductors fall under HS lines that currently attract little or no reciprocal or Section 122 duty. Second, the labor-intensive consumer categories that anchor Vietnam’s reputation footwear, knit and woven apparel, furniture sit at the punishing end of the range, with knit apparel averaging above 30%. These are precisely the categories where US importers have the least pricing power and the thinnest margins.
The volatility is best seen at the product level. A representative cotton knit shirt line (HS 61102020) entered 2025 at a 16.5% applied rate, climbed to 26.5% in June 2025 as the IEEPA reciprocal and Section 122 layers stacked on, peaked at 36.5% by September 2025, and then fell back to 26.5% after the February 2026 Supreme Court ruling removed the IEEPA component. An importer who signed annual supply contracts at the September peak is now structurally overpaying relative to the post-SCOTUS base a vivid illustration of why timing, not just the headline rate, drives landed cost.
Implications for US importers
Landed costs face upward pressure from two directions at once. Vietnam’s import-driven deficit signals that the dollar cost of the raw materials and components feeding Vietnamese factories is rising. Those input costs will work their way into the ex-factory prices US buyers pay over the next two to four quarters, independent of any tariff change. Layered on top is the unsettled US tariff base: importers are paying the 15% Section 122 surcharge plus residual Section 301 and most-favored-nation duties, with no certainty about what the rate becomes after the Section 122 clock expires.
The weaker dong is a partial, unreliable offset. A dong depreciating 4-5% against the dollar mechanically lowers the dollar price of Vietnamese goods, which can absorb part of a tariff increase. But Vietnamese exporters facing higher local-currency input costs will resist passing the full currency benefit through, and the SBV may intervene to slow depreciation to protect its reserve position. Importers should not bank on the currency to neutralize tariff exposure.
Refund opportunities exist but are operationally complex. Because the Supreme Court invalidated the IEEPA tariffs, importers that paid them between April 2025 and February 2026 may be entitled to refunds. The mechanics have not been finalized and are expected to be cumbersome, but companies with large IEEPA-era entries should be preserving entry documentation, protest deadlines and liquidation records now.[1]
Category exposure should drive sourcing decisions. Importers of electronics enjoy a relatively benign 7-8% effective rate and limited reason to disrupt established Vietnamese supply chains. Importers of apparel, footwear and furniture face 20-30%+ rates and a sharper cost-benefit calculus around diversification toward other low-cost producers though every alternative carries its own tariff and capacity constraints, and Vietnam’s 40% transshipment penalty makes re-routing through third countries legally hazardous.
Implications for US exporters
A weaker dong makes US goods more expensive in Vietnam. As the dong depreciates, every dollar of US machinery, aircraft, agricultural commodity or technology costs more in local-currency terms, which can soften Vietnamese demand for US exports and intensify competition from suppliers invoicing in cheaper currencies. Exporters of price-sensitive commodities cotton, soybeans, animal feed are the most exposed to this channel.
The framework deal opens concrete market-access wins. In exchange for the 20% tariff arrangement, Vietnam committed to dismantle a range of non-tariff barriers: accepting vehicles built to US motor-vehicle safety and emissions standards, allowing imports of US remanufactured goods, and addressing barriers to US agricultural products.[2] For US automakers, machinery remanufacturers and agricultural exporters, these are tangible openings in a fast-growing 100-million-person market provided the framework is finalized rather than stalling in the post-SCOTUS legal reshuffle.
Vietnam’s import appetite is a demand tailwind. The very import surge driving the deficit reflects robust Vietnamese industrial activity and consumption. A country importing 30%+ more year-on-year is a country buying more capital equipment, components and raw materials some of which US exporters of high-value machinery, instruments and specialty chemicals are well placed to supply. The deficit is a warning sign for Vietnam’s external accounts but, read correctly, a signal of underlying import demand US sellers can target.
Reserve pressure could eventually constrain trade finance. If the deficit persists and reserves erode toward two months of import cover, the SBV may tighten access to foreign exchange or prioritize essential imports. US exporters of discretionary or big-ticket goods should monitor Vietnam’s reserve trajectory and consider securing payment terms and FX hedges accordingly.
The renewed tariff risk and what to watch
The phrase renewed tariff risk captures a specific, datable danger rather than vague uncertainty. The Section 122 surcharge that currently underpins much of the duty on Vietnamese goods is legally capped at 150 days from its February 24, 2026 effective date, putting its expiry in the second half of July 2026. Three scenarios follow, and trade professionals should pre-position for each.
Scenario one framework finalized. The US and Vietnam complete the reciprocal trade agreement, locking in the 20% baseline with defined zero-rate carve-outs for Annex III products and the 40% transshipment penalty. This is the most stable outcome and would let importers and exporters plan against a known rate. Companies should map which of their products fall on the Annex III zero-rate list, as the difference between 0% and 20% is decisive for sourcing.
Scenario two statutory pivot. The administration replaces the expiring Section 122 surcharge with product-specific Section 301 or Section 232 actions, which carry no 150-day limit but require investigations and are targeted by sector rather than applied across the board. This would create a patchwork of rates that rewards careful HS-code-level analysis and penalizes companies that plan off headline averages.
Scenario three cliff-edge or escalation. Congressional gridlock or a negotiating breakdown leaves the rate base in limbo, or a trade dispute triggers renewed escalation toward the original 46% reciprocal threat. This tail risk is lower-probability but high-impact, and is the case against which importers in high-rate categories should hold contingency sourcing and inventory plans.
Practical checklist
Across all three scenarios, the following actions are robust:
• Re-run landed-cost models at the HS 8-digit level rather than the 15.91% national average product-level rates range from 0% to over 36%.
• Preserve documentation for IEEPA-era entries (April 2025-February 2026) to protect potential refund claims.
• Identify whether key products qualify for Annex III zero-rate treatment under the framework deal.
• Stress-test contracts against a Section 122 expiry in mid-July 2026 and the dong depreciating a further 4-5%.
• Avoid any sourcing structure that could be characterized as transshipment, given the 40% penalty rate.
• For exporters, lock in FX terms and monitor Vietnam’s reserve cover as a forward indicator of trade-finance friction.
Conclusion
Vietnam’s record $5.21 billion May deficit is, on its own, a manageable cyclical event driven largely by commodity-price-inflated imports rather than failing exports. Its significance for US companies lies in the collision of three forces: rising Vietnamese input costs that will lift landed prices, a depreciating dong that offsets some of that pressure but cannot be relied upon, and a US tariff regime whose legal foundation was knocked out in February and rebuilt on a 150-day Section 122 clock that is now running down. Importers in low-rate electronics categories can hold steady; those in apparel, footwear and furniture should treat the next two quarters as a decision window on sourcing and contracting. Exporters should press the market-access openings in the framework deal while hedging against a weaker dong and tightening Vietnamese foreign-exchange conditions. The common thread is that the national-average tariff figure is the wrong planning unit. The companies that fare best will be those that model exposure product by product, watch the July 2026 Section 122 deadline closely, and keep contingency plans ready for whichever of the three scenarios materializes.