Three Product Groups Driving Trade Deficit Surge: What Opportunities for Export SMEs?

Overview of Trade Deficit in Three Key Product Categories

According to a report from the Economic and Financial Journal, three product groups are putting significant pressure on Vietnam’s trade balance with notably increasing trade deficits. This signals an imbalance in the import-export structure while also reflecting rising domestic consumption demand and production input requirements.

Data shows these product groups primarily include machinery and equipment, production raw materials and auxiliary materials, and some premium consumer goods. The sharp increase in imports reflects two realities: first, domestic manufacturing still heavily depends on foreign supply sources; second, domestic purchasing power is showing signs of recovery after a difficult period.

The high trade deficit figures are not entirely negative when viewed in a long-term context. Many FDI enterprises and large corporations are expanding production capacity, leading to increased demand for machinery and raw material imports. This could lay the foundation for a new wave of exports in the future when these projects become operational.

Details of Three Product Groups Causing Trade Deficit

The first group is machinery, equipment and replacement parts. This is the product group with the highest import value, accounting for a large proportion of total import turnover. The main reason comes from the wave of production relocation to Vietnam, with foreign enterprises investing in new production lines and upgrading technology.

The second group is raw materials and auxiliary materials for the textile, footwear and electronics industries. Although Vietnam is a major exporter of finished products, most input materials still have to be imported from China, South Korea and Taiwan. The localization rate in these industries remains low, around 30-40%, creating heavy dependence on the global supply chain.

The third group is premium consumer goods and automobiles. With increasing per capita income, Vietnamese consumers are trending toward higher-quality products, many of which are not yet domestically produced or domestic quality has not met expectations. In particular, imports of completely built-up automobiles from ASEAN countries and Thailand increased sharply after tariffs dropped to 0%.

Ho Alva’s Analysis: Reading Signals from an Export Perspective

With 5 years of operating stores on Alibaba, Etsy, Amazon and implementing large projects like Gomery and TP-Menswear, I clearly see one thing: the high trade deficit in these three product groups is NOT bad news for export SMEs, but rather a roadmap.

First, when machinery imports increase, it means production capacity is being upgraded. New factories and modern production lines will create better quality products that meet higher international standards. This is precisely the opportunity for SMEs to seek OEM partners or collaborate on ODM product development with these enterprises for export.

Second, high raw material imports reflect increasing export orders. When Big E Co. increased fabric and accessory imports from China by 40% in Q1, we knew that orders from the US and EU were increasing correspondingly. Raw material trade deficit figures usually precede finished product trade surplus figures by about 2-3 months. This is the law of the production chain.

Third, increasing consumer goods imports show the domestic market is “thirsty” for quality products. This is a gap for SMEs to develop high-quality domestic products FIRST, then use credibility from the Vietnamese market as a launchpad for export. This “strong inside, strong outside” strategy I successfully applied to the Gomery project.

Specific Opportunities for Export SMEs

First opportunity: Seek processing partners in expanding industrial zones. FDI enterprises often need domestic partners to supply auxiliary components, packaging, and logistics services. With the advantages of proximity, flexibility and competitive prices, Vietnamese SMEs can wedge into this supply chain.

Second opportunity: Develop import-substituting raw materials and auxiliary materials. The government is strongly promoting localization support policies. If SMEs can produce fabrics, accessories, and electronic components that meet international standards, the domestic market is ready with a multi-billion USD scale. From successful localization, the step to export will be much easier.

Third opportunity: Counter-flow export. When Vietnamese people prefer foreign goods for quality, SMEs can learn, improve and make equivalent or better products for export. I call this the “benchmark and surpass” strategy. For example, when imports of Thai household goods increase, it means there’s a market gap that Vietnamese SMEs can fill with better-designed, more reasonably priced products.

Risk Warnings to Avoid

The first risk is depending too much on imported raw materials without a contingency plan. From my experience operating on Alibaba, I’ve seen many SMEs “die” due to supply chain disruptions when Chinese suppliers suddenly raised prices or stopped exporting. The solution is to ALWAYS have at least 2 supply sources and maintain a safe inventory of 45-60 days.

The second risk is investing in new machinery without confirmed orders. Many SMEs hear “machinery imports increasing” and rush to borrow money to buy equipment, but don’t have clear distribution channels. The result is debt piling up and machinery sitting idle. My principle: HAVE ORDERS FIRST, INVEST LATER. Test the market with outsourced production before deciding on large investments.

The third risk is exchange rate. When trade deficit increases, pressure on VND/USD exchange rate is real. If VND depreciates, imported raw material costs will increase, eroding profits. SMEs need exchange rate risk hedging strategies, for example: signing forward contracts with banks, or increasing localization rates to reduce foreign currency dependence.

This is not the time to be pessimistic about trade deficit figures. This is when SMEs need to carefully read market signals, find the right position in the global value chain and act quickly. Macro data only has value when you turn it into specific micro actions for your business. The question isn’t “is trade deficit bad?”, but “what will MY business DO with this information?”