India’s Textile Industry at a Breaking Point: Tariffs, Structural Weaknesses and the Urgent Need for Reinvention

Economic

Summary:

A 50% U.S. tariff has triggered a severe contraction in India’s $179 billion textile industry, exposing structural vulnerabilities in Tiruppur its largest knitwear hub and forcing businesses into survival mode amid collapsing exports and labor distress....

A Sudden Shock That Shattered an Export Engine

The U.S. tariff hike to 50% comprising a 25% baseline tariff and an additional 25% penalty tied to India’s purchases of Russian oil has rapidly destabilized India’s textile sector. With the U.S. absorbing $37 billion of India’s textile exports in 2024, the causal impact is direct and immediate: order inflows have collapsed, production capacity has shrunk, and thousands of workers now face income uncertainty.

Tiruppur, which accounts for 68% of India’s knitwear exports and employs roughly 800,000 workers, is the epicenter of this crisis. The region’s dependence on the U.S. market is substantial 35% of its monthly output, equivalent to 15 billion rupees, flows directly to American buyers. When the tariff spike took effect on August 27, export volumes plunged by 10.34% in September and another 12.91% in October, marking one of the steepest falls in the past decade.

Margins Collapse as Buyers Pull Back

The tariff’s economic transmission mechanism is clear: the effective duty rate jumped far beyond comparable levels for competitors such as Bangladesh, Pakistan, Sri Lanka, and Myanmar, who face tariffs around 19–20%. Even the original 25% increase had already eroded margins, which typically range only between 5–10%. But the additional 25% penalty effectively destroyed the ability of Indian exporters to price competitively.

The consequences are evident in individual case studies. Raft Garments, a family-run exporter supplying major U.S. labels like Nautica and Skechers, saw its annual order volume cut from 2 million units to barely 500,000. The remaining 1.5 million units initially under negotiation have been indefinitely shelved. Similar stories reverberate across Tiruppur, where factories have draped idle machinery in blue tarpaulins, symbolizing paralysis across the cluster.

Production Cuts and Labor Distress: A Social Crisis Emerges

The collapse in demand has triggered cascading effects on employment. Firms have reduced operating capacity to one-third, merged shifts, and refrained from rehiring migrant workers after the Deepavali holidays due to a lack of work. Raft Garments, once operating 15 production lines, now runs only 5, employing just 84 of its original 250 workers.

This is not a headline-grabbing mass layoff, but a slow-burn erosion of livelihoods. Daily-wage and piece-rate workers primarily women and Dalit communities are the most vulnerable. Their workload has fallen sharply, tightening household finances and prompting reverse migration back to home villages.

The link between trade policy and labor outcomes is therefore causal and immediate: the tariff shock constricts export demand, forcing production cuts and reducing labor absorption.

Businesses Scramble for New Markets But Substitutes Are Limited

New Delhi has urged exporters to diversify beyond the U.S., but entrepreneurs emphasize that textile supply chains cannot be reoriented overnight. Establishing new buyer relationships in Europe, Africa or the Middle East often takes months or years and rarely matches U.S. order volume.

Some business owners are exploring radical strategies setting up production abroad in Bangladesh or Vietnam to circumvent tariffs. This indicates a structural, not cyclical, rupture: the industry is considering geographical realignment of manufacturing capacity, a sign of deep vulnerability in India’s textile value chain.

A Political Problem Requires a Political Solution

Industry associations argue that no amount of domestic cost-cutting can offset a 50% tariff. The central government’s 200-billion-rupee credit package offers temporary liquidity, but risks increasing leverage in a sector already burdened by thin margins and high labor intensity.

Exporters insist the only meaningful remedy lies in diplomacy. The tariff, fundamentally geopolitical in nature, can only be reversed through a renegotiated trade arrangement. The survival of thousands of firms now hinges on the outcome of ongoing U.S.–India discussions.

Structural Weaknesses Laid Bare

While the tariff shock was externally triggered, it has revealed fundamental internal weaknesses. Many Tiruppur factories still operate with machinery from the 1990s, while global buyers increasingly demand advanced textiles with antimicrobial, moisture-wicking, and stain-resistant properties. As competitors invest aggressively in innovation, India remains stuck in a volume-driven, low-margin model.

This is a correlational insight with long-term implications: outdated technology does not directly cause tariff exposure, but it amplifies vulnerability when external disruptions occur. A technologically modernized industry would have had stronger pricing power and better resilience.

Reinvention Is No Longer Optional

The crisis gripping India’s textile industry is both an external shock and an internal reckoning. U.S. tariffs have dealt the immediate blow, but the sector’s fragility stems from years of underinvestment in technology, overdependence on a single market, and limited strategic diversification.

For Tiruppur and India’s wider textile ecosystem, the path forward requires simultaneous action on two fronts: diplomatic engagement to ease tariff burdens and deep structural reforms to upgrade production capabilities, broaden export destinations, and modernize factory operations.

Without such transformation, India’s most important textile hub will remain dangerously exposed to the next geopolitical wave one that could be even harder to withstand.

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Justin

Political

Economic

After being elected in a landslide last year, Britain's Labour Party government delivered a budget it billed as a one-off dose of tax hikes to fix the public finances, get debt down, ease the cost of living and spur economic growth.

A year on, inflation remains stubbornly high, government borrowing is up and the economy is turgid. The annual budget, due on Wednesday, is expected to bring more tax hikes in pursuit of the same elusive economic boom.

Rain Newton-Smith, head of business group the Confederation of British Industry, said Monday that "it feels less like we're on the move, and more like we're stuck in 'Groundhog Day.'"

It's not just businesses who are concerned. Alarmed by the government's consistently dire poll ratings, some Labour lawmakers are mulling the once-unthinkable idea of ousting Prime Minister Keir Starmer, who led them to victory less than 18 months ago.

Luke Tryl, director of pollster More in Common, said voters "don't understand why there has not been positive change.

"This could be a last-chance saloon moment for the government."

Not much room for maneuver

The government says Treasury chief Rachel Reeves will make "tough but right decisions" in her budget to ease the cost of living, safeguard public services and keep debt under control.

She has limited room for maneuver. Britain's economy, the world's sixth-largest, has underperformed its long-run average since the global financial crisis of 2008-2009, and the center-left Labour Party government elected in July 2024 has struggled to deliver promised economic growth.

Like other Western economies, Britain's public finances have been squeezed by the costs of the COVID-19 pandemic, the Russia-Ukraine war and U.S. President Donald Trump's global tariffs. The U.K. bears the extra burden of Brexit, which has knocked billions off the economy since the country left the European Union in 2020.

The government currently spends more than 100 billion pounds ($130 billion) a year servicing the U.K.'s national debt, which stands at around 95% of annual national income.

Adding to pressure is the fact that Labour governments historically have had to work harder than Conservative administrations to convince businesses and the financial markets that they are economically sound.

Reeves is mindful of how financial markets can react when the government's numbers don't add up. The short-lived premiership of Liz Truss ended in October 2022 after her package of unfunded tax cuts roiled financial markets, drove down the value of the pound and sent borrowing costs soaring.

Luke Hickmore, an investment director at Aberdeen Investments, said the bond market is the "ultimate reality check" for budget policy.

"If investors lose faith, the cost of borrowing rises sharply, and political leaders have little choice but to change course," he said.

Mixed pre-budget signals

The government has ruled out public spending cuts of the kind seen during 14 years of Conservative government, and its attempts to cut Britain's huge welfare bill have been stymied by Labour lawmakers.

That leaves tax increases as the government's main revenue-raising option.

"We're very much not in the position that Rachel Reeves hoped to be in," said Jill Rutter, a senior fellow at the Institute for Government think tank.

Instead of an economy that has "sparked into life," enabling higher spending and lower taxes, Rutter said Reeves must decide whether "to fill a big fiscal black hole with tax increases or spending cuts."

The budget comes after weeks of messy mixed messaging that saw Reeves signal she would raise income taxes – breaking a key election promise – before hastily reversing course.

In a speech on Nov. 4, Reeves laid the groundwork for income tax hikes by arguing that the economy is sicker and the global outlook worse than the government knew when it took office.

After an outcry among Labour lawmakers, and a better-than-expected update on the public finances, the government signaled it preferred a smorgasbord of smaller revenue-raising measures such as a "mansion tax" on expensive homes and a pay-per-mile tax for electric vehicle drivers.

The government will try to ease the sting with sweeteners including an above-inflation boost to pension payments for millions of retirees and a freeze on train fares.

Critics say more taxes on employees and businesses, following tax hikes on businesses in last year's budget, will push the economy further into a low-growth doom loop.

Patrick Diamond, professor in public policy at Queen Mary University of London, said satisfying both markets and voters is difficult.

"You can give markets confidence, but that probably means raising taxes, which is very unpopular with voters," he said. "On the other hand, you can give voters confidence by trying to minimize the impact of tax rises, but that makes markets nervous because they feel that the government doesn't have a clear fiscal plan."

High stakes for Reeves and Starmer

The budget comes as Starmer is facing mounting concern from Labour lawmakers over his dire poll ratings. Opinion polls consistently put Labour well behind the hard-right Reform UK party led by Nigel Farage.

The prime minister's office sparked a flurry of speculation earlier this month by preemptively telling news outlets that Starmer would fight any challenge to his leadership. What looked like an attempt to strengthen Starmer's authority backfired. The reports set off jitters verging on panic among Labour lawmakers, who fear the party is heading for a big defeat at the next election.

That election does not have to be held until 2029, and the government continues to hope that its economic measures will spur higher growth and ease financial pressures.

But analysts say a misfiring budget could be another nail in the coffin of Starmer's government.

"Both Starmer and Reeves are really unpopular," Rutter said. "They may be hanging on for now, but I don't think people will be giving you great odds that they'll necessarily last the course of the Parliament," which runs until the next election.

Source: Yahoo Finance

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Winkelmann

Economic

New car sales in Europe rose 4.9% in October as electric cars outpaced petrol and diesel registrations, European Automobile Manufacturers' Association data showed on Tuesday.

WHY IT'S IMPORTANT

The European car industry has taken a series of hits this year including U.S. President Donald Trump's trade tariffs, a slowdown in the Chinese market, and a slower-than-expected transition to electric vehicles.

Recently, concerns about a potential chip supply chain crisis surrounding Dutch chipmaker Nexperia had also added fuel to the fire.

Meanwhile, Chinese electric car exports to Europe are increasing.

BY THE NUMBERS

Sales in the European Union, Britain and the European Free Trade Association rose to 1.092 million cars in October as its largest markets including Germany and Britain added more new cars than last year, ACEA data showed.

Registrations at Volkswagen, Stellantis and Renault rose year-on-year by 6.5%, 4.6% and 10.6%, respectively. Despite Stellantis' registrations being down 4.7% year-to-date compared to the same period in 2024.

Tesla's sales meanwhile dropped 48.5% from a year ago as BYD's sales jumped 206.8%, now holding 1.6% of the market share from 0.5% in October 2024. Registrations of Chinese-owned SAIC Motor also jumped 35.9% from last year.

Total EU car sales rose 5.8%. Registrations of battery electric, plug-in hybrid and hybrid electric cars were up 38.6%, 43.2% and 9.4%, respectively, to account collectively for about 63.9% of the bloc's registrations, up from 55.4% in October 2024.

All major markets saw drops in their petrol and diesel

Overall sales rose 7.8% in Germany, 0.5% in the UK, 15.9% in Spain, 2.9% in France and fell 0.5% in Italy.

QUOTE

European Car Sales Rise 4.9% In October, ACEA Says_1

"Despite this recent positive momentum, overall volumes remain far below pre-pandemic levels," ACEA said.

"The battery-electric car market share reached 16.4% year to date, yet it is still below the pace needed at this stage of the transition," it added.

Source: Investing

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Gerik

Forex

Economic

A Currency Defying Headwinds

In 2025, the renminbi has posted a nearly 3% annual gain against the U.S. dollar, a notable contrast to its 5% depreciation in 2018 during the height of U.S.–China trade tensions. What makes this performance remarkable is the backdrop: China is contending with weak domestic consumption, record-low interest rates, a $281 billion capital account deficit over the first 10 months, and ongoing trade pressures from the U.S.

Yet, despite these negative fundamentals, the renminbi has appreciated steadily. This divergence between economic headwinds and currency strength signals a key causal force tight state management of the exchange rate by the People’s Bank of China (PBoC). Through persistently setting the daily midpoint reference rate above market expectations and deploying state-owned banks to buy USD in both onshore and offshore markets, Beijing has maintained orderly appreciation while avoiding volatility.

A Renewed Push for Currency Internationalization

The controlled strengthening of the renminbi suggests a renewed policy priority: positioning the currency as a regional and global store of value. Analysts from Pantheon Macroeconomics and Societe Generale point to similarities with China’s behavior during the 1998 Asian Financial Crisis, when it resisted competitive devaluation to build credibility.

This time, the policy intent is clearer. The 15th Five-Year Plan, released in October 2025, omits previously cautious language like "prudently promote" yuan internationalization. Goldman Sachs interprets this shift as a signal that currency internationalization is now a central policy goal, supported by Beijing’s tolerance for moderate, steady CNY appreciation.

Interest Rate Asymmetry and the Reference Rate Strategy

The current PBoC benchmark rate remains significantly below that of the U.S. Federal Reserve, reflecting China’s need to support weak domestic growth. However, the renminbi’s rise is not being driven by interest differentials traditionally a key determinant of FX flows but by aggressive use of the central bank’s reference rate.

Since November 2024, the average spread between PBoC’s daily fix and market expectations has been 327 basis points an unusually high gap that highlights China’s proactive control. This divergence is not accidental; it creates a one-sided expectation that the yuan will not weaken drastically, which deters speculative short-selling and supports confidence in the currency.

Foreign Exchange Activity and Capital Controls

Another structural pillar supporting the renminbi’s stability is the role of state-owned banks. Their regular participation in the market, including discreet sales of yuan and purchases of dollars, has kept the three-month volatility of CNY/USD at near decade-lows. This engineered calm has incentivized exporters to gradually unwind their holdings of over $1 trillion stored in domestic banks creating real USD supply and reinforcing CNY strength.

That said, the renminbi’s strength is not uniform. It has lost 7.7% against the euro and 3% against a trade-weighted currency basket this year, indicating that the appreciation is concentrated primarily in the USD pair. Moreover, without meaningful relaxation of China’s strict capital controls, large-scale global usage of the renminbi remains structurally constrained.

Growing Usage in Global FX Markets

According to the latest BIS survey, daily trading volume in the CNY–USD pair surged nearly 60% to $781 billion compared to 2022. The renminbi now accounts for over 8% of global FX turnover, suggesting growing interest from global participants especially central banks and institutional investors despite the limits of convertibility.

This is likely part of a long-term strategy. By anchoring the renminbi’s value and demonstrating stability amid global financial turbulence, China is nurturing its credibility as a reserve and trade settlement currency. This is particularly relevant in light of de-dollarization efforts among emerging economies and geopolitical shifts that encourage diversification in global payment systems.

A Political Currency with Global Aspirations

China’s recent handling of the renminbi is not simply a reaction to short-term economic conditions it is a calculated signal of its broader ambitions. The combination of disciplined exchange rate management, state-supported interventions, and long-term reform commitments suggest that Beijing is actively reengineering the renminbi’s role in the global financial system.

While structural limits like capital flow restrictions remain in place, China is taking incremental but deliberate steps to elevate the renminbi as a trusted regional and global asset. The steady pace of CNY appreciation, underpinned by trade competitiveness and historical credibility, could prove to be Beijing’s most effective instrument of soft power in an increasingly multipolar financial world.

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Gerik

Economic

Forex

Interest Rate Divergence Undermines CAD in 2025

The Canadian dollar has struggled throughout 2025, hovering around 71 U.S. cents, following a sharp decline from a peak of 73.7 cents in June. Analysts attribute this weakness to several overlapping factors, most notably the widening interest rate gap between the U.S. Federal Reserve (Fed) and the Bank of Canada (BoC). While the Fed has recently cut rates twice bringing its benchmark down to 4% its rate still significantly exceeds BoC’s 2.25%, making the U.S. dollar relatively more attractive to global investors. The result has been a sustained depreciation of the CAD throughout the second half of 2025.

The short-term causal impact of interest rate differentials is clear: higher returns on U.S. assets have triggered capital outflows from Canada, applying direct downward pressure on the Canadian currency.

Forecast for 2026: Steady Climb Amid Shifting Monetary Landscape

According to Scotiabank's projections, the Canadian dollar is expected to stabilize and begin recovering in 2026. The bank forecasts the CAD starting the year at 72.5 U.S. cents and gaining approximately one cent per quarter, potentially reaching 75 cents by the end of the year. This anticipated uptrend is tied to the expectation that the Fed will continue its easing cycle, cutting rates by a total of 100 basis points to reach 3% amid mixed signals from the U.S. economy including strong equity markets, a sluggish housing sector, and uneven consumer spending.

This anticipated narrowing of interest rate differentials suggests a likely reversal in capital flows, benefiting the Canadian dollar. Additionally, Scotiabank believes BoC’s October rate cut may have marked the end of its easing cycle, implying a more restrictive stance going forward. This divergence in policy trajectories reinforces a causal expectation of CAD appreciation through 2026.

Fiscal Stimulus and Structural Reforms Add Tailwinds

Canada's federal fiscal stimulus though expected to take effect with some delay is also seen as supportive of domestic economic growth. Scotiabank suggests that while the capital expenditure wave from the federal budget will take time to materialize, it will eventually enhance productivity and employment, indirectly strengthening the CAD.

The link here is sequential rather than immediate: fiscal spending takes six to twelve months to filter through the economy, meaning the CAD’s response may only become noticeable in late 2026 or early 2027. Nonetheless, improved fundamentals should boost investor confidence in Canada’s growth trajectory.

Trade Policy Risks Cloud the Outlook

However, several risk factors could impede the CAD’s recovery. Foremost among them is uncertainty surrounding U.S. trade policy. Key Canadian export sectors such as steel, aluminum, autos, and lumber remain vulnerable to tariff regimes and protectionist rhetoric. Although there are discussions about potential tariff reductions for aluminum, the broader risk of renewed trade frictions poses a persistent threat to Canada’s external balance.

This relationship is causal and direct: protectionist trade measures reduce export volumes, weaken trade surpluses, and lower demand for Canadian currency. Such developments could easily offset gains made through monetary normalization or fiscal support.

The Canadian dollar’s prospects in 2026 are cautiously optimistic. While narrowing rate differentials and upcoming fiscal outlays point to a gradual strengthening trend, material risks remain. The currency’s path will be shaped not only by domestic monetary and fiscal policy but also by global investor sentiment and bilateral trade tensions especially with the United States. For CAD to reach the 75–77 U.S. cents range forecast for 2026–2027, macroeconomic coordination and stable trade relations will be just as critical as interest rate dynamics.

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Gerik

Economic

Global Trade Uncertainty: A Stress Test for Emerging Markets

A growing body of evidence from institutions like the European Bank for Reconstruction and Development (EBRD), Morgan Stanley, and Verisk Maplecroft suggests that while U.S. tariffs are distorting global trade flows, the consequences are uneven and often less severe than anticipated for Asia. The EBRD recently downgraded global growth forecasts for 2025 from 3.5% to 3.2%, attributing the revision largely to policy uncertainty rather than direct tariff impacts. Trade rules’ unpredictability alone has had a chilling effect on investment and production, with implications for long-term supply chain patterns.

According to EBRD Chief Economist Beata Javorcik, most Eastern European and Central Asian nations have limited direct exposure to U.S. tariffs due to relatively small export volumes to the United States. However, the broader concern lies in indirect effects. Slowing growth in Europe the primary export market for these countries is reducing global demand, which in turn weakens trade-linked economies.

More significantly, global FDI flows are undergoing a fundamental restructuring due to rising geopolitical fragmentation. Investment between sanction-imposing Western countries and Eastern partners like China and Russia has plummeted. In this vacuum, so-called “connector economies” such as UAE, Egypt, Saudi Arabia, and Uzbekistan have emerged as alternative investment hubs. The sharpest beneficiaries are in Central Asia and the Caucasus: countries like Kazakhstan, Kyrgyzstan, Georgia, and Armenia saw export surges to the EU of up to 90% in 2024 via intermediary trade, though total export volume remained 5% below 2023 levels.

Asia’s Resilience: More Than Just Strong Numbers

In contrast to volatility in Europe and Central Asia, Asian economies have surprised analysts with their capacity to withstand trade shocks. Morgan Stanley’s November report highlights that 7 of the top 10 trade surplus economies with the U.S. are Asian, reflecting a deepening economic reliance on American demand. In 2024, exports to the U.S. accounted for 16%–24% of total trade for countries like Thailand, South Korea, Japan, and Taiwan.

Despite underperformance in equity markets Southeast Asia’s index rose just 10% versus a 30% gain in broader emerging markets regional GDP growth has held steady. According to HSBC, factors contributing to this resilience include reduced U.S. threats of extreme tariffs, which lowered investor anxiety, and a weaker U.S. dollar, which gave Asian central banks more room to ease monetary policy without jeopardizing financial stability.

Technology: A Shield Against Tariff Headwinds

A critical differentiator for Asia has been its dominance in high-tech exports. Semiconductor demand, fueled by AI and digital infrastructure, has buoyed manufacturing powerhouses like South Korea and Malaysia. South Korea’s exports rose 6% in Q3 after a 4.2% gain in Q2. Bloomberg’s Asia-Pacific Semiconductor Index surged 17% in November alone, reflecting this tech-driven tailwind.

This growth is not coincidental but structurally embedded. The causal relationship is evident: tariff pressures have accelerated the digital transformation wave, and Asian economies are reaping the benefits of first-mover advantages in advanced manufacturing sectors.

Tariff Pressure Spurs Internal Reforms

Rather than being purely disruptive, U.S. tariff escalation has acted as a reform catalyst. South Korea, for instance, has aggressively overhauled its corporate governance, propelling its main equity index up 70% this year. Many Asian governments have adopted a dual strategy meeting U.S. trade expectations while diversifying diplomatic and commercial partnerships.

This dynamic adaptation highlights a form of causal resilience: external pressure did not cripple these economies but instead triggered proactive domestic change, enhancing long-term competitiveness.

Emerging Markets and Strategic Hedging

Verisk Maplecroft’s assessment of 20 major emerging markets further supports the resilience thesis. Analysts concluded that nations like China, Brazil, and India possess sufficient buffers to withstand broad-based U.S. tariffs. Even directly exposed economies like Mexico and Vietnam have maintained stability through progressive economic policy, improved infrastructure, and political steadiness.

Vietnam, in particular, has shown that despite deep reliance on U.S. trade, structural reforms and strategic engagement with multiple partners have helped offset risk exposure. Brazil and South Africa are following suit by broadening trade portfolios and reducing overdependence on any single market.

China’s Long-Term Position Remains Intact

Despite being at the center of tariff disputes, China retains significant influence over global supply chains. Its control over critical materials like rare earths and its ongoing investments in Southeast Asia complicate any attempt to replace it in the production hierarchy. Additionally, China is fortifying its currency’s role in global transactions. Through bilateral agreements enabling yuan-based trade with countries like Brazil, Argentina, and Chile, and through heavy outbound investment in lithium and copper extraction in Latin America, China is positioning itself to resist future geopolitical shocks.

The U.S. tariff campaign has not dismantled Asia’s trade position it has redirected and reconfigured it. While some economies have experienced friction, the region’s leading exporters have used this moment to innovate, diversify, and recalibrate. Technological advancement, policy agility, and geopolitical hedging have proven vital. The emerging pattern suggests that Asia is not merely weathering the storm it is remapping global trade flows in its favor.

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Gerik

Economic

EU Mobilizes Financial and Political Support Following Vietnam’s Storm Crisis

Amid the devastation caused by recent storms in Vietnam, the European Union has stepped forward with direct financial assistance and a diplomatic show of solidarity. On November 24, during the 6th Joint Committee Meeting on the Vietnam–EU Partnership and Cooperation Agreement (PCA) held in Brussels, EU officials confirmed the disbursement of €850,000 (approximately 26 billion VND) in emergency support to help Vietnam address the aftermath of severe flooding and storm damage. The aid underscores not only the EU’s humanitarian responsiveness but also its long-term strategic engagement with Vietnam as a regional partner in Southeast Asia.

The meeting was co-chaired by Vietnamese Deputy Foreign Minister Lê Thị Thu Hằng and Paola Pampaloni, Acting Managing Director for Asia and the Pacific at the European External Action Service (EEAS). In her remarks, Pampaloni called on EU member states to provide additional assistance, and several nations including Germany and the Czech Republic have already responded positively. An EU emergency shipment from Luxembourg arrived in Vietnam the same day.

Reinforcing the Economic and Institutional Pillars of Cooperation

Beyond immediate disaster relief, the session reiterated both parties’ determination to fully implement the EU–Vietnam Free Trade Agreement (EVFTA) and to accelerate the ratification of the EU–Vietnam Investment Protection Agreement (EVIPA), which is still pending approval from six EU member states. These agreements form the legal and economic backbone of the Vietnam–EU relationship, designed to promote transparency, regulatory alignment, and mutual market access.

The causal link between regulatory integration and investment flows remains a core pillar of EU economic diplomacy, with Vietnam viewed as a stable and promising partner. The EU continues to regard Vietnam as a model country in ASEAN, praising its economic reforms and global integration.

Focus on Science, Technology, and Sustainable Development

The EU and Vietnam agreed to deepen collaboration across emerging sectors, notably green economy, digital transformation, circular economy, sustainable fisheries, infrastructure development, and biodiversity conservation. Scientific research and innovation are increasingly seen as new pillars of cooperation, with both sides aiming to connect EU expertise with Vietnam’s growth ambitions.

Vietnam proposed further engagement through flagship EU programs such as Erasmus+ (education and youth mobility), Horizon Europe (the bloc’s largest R&D funding mechanism), and the Just Energy Transition Partnership (JETP). These platforms offer Vietnam critical financial and knowledge-based resources for transitioning toward low-carbon, high-tech development pathways.

Addressing IUU and Unlocking Fisheries Trade

Deputy Minister Lê Thị Thu Hằng briefed EU officials on Vietnam’s intensified efforts to combat illegal, unreported, and unregulated (IUU) fishing. In requesting the removal of the EU’s “yellow card” warning, Vietnam positioned itself as a responsible actor aligning with global marine sustainability norms. The EU acknowledged these efforts and promised continued technical dialogue to resolve outstanding compliance issues.

This exchange demonstrates a direct cause-effect relationship between Vietnam’s domestic regulatory reforms and the possibility of restoring full seafood market access to the EU, a vital export destination.

Geopolitical Coordination and Global Norms

The strategic partnership also touched on shared geopolitical interests. Both sides reaffirmed their support for multilateralism, upholding the United Nations Charter, and resolving international disputes through peaceful means. They emphasized the importance of maritime freedom in the South China Sea and reiterated the legal significance of the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

The EU expressed hope that Vietnam would actively participate in regional initiatives such as the Global Gateway Strategy and the EU’s Indo-Pacific Cooperation Strategy. These frameworks seek to enhance connectivity, infrastructure resilience, and sustainable development across Asia, particularly in the Mekong sub-region.

The EU–Vietnam relationship continues to evolve into a comprehensive strategic partnership grounded in mutual interests and shared values. From emergency aid in times of disaster to coordinated efforts in trade, innovation, and environmental governance, both sides are building a multifaceted cooperation model. As Vietnam confronts challenges in climate resilience, energy security, and technological transformation, the EU stands ready to offer both financial resources and policy frameworks—cementing Vietnam’s role as a pivotal partner in its Indo-Pacific outreach.

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