Vietnam’s Manufacturing Sector Shows Cautious Recovery Amid External Headwinds

Economic

Summary:

Vietnam’s manufacturing PMI rose to 49.8 in May 2025 from 45.6 in April, signaling a tentative recovery. However, weak export demand, trade tensions, and uncertainty continue to weigh on growth prospects....

PMI Uptick Signals Early Recovery But Below Expansion Threshold

The manufacturing sector in Vietnam is beginning to show early signs of recovery. According to S&P Global, the Purchasing Managers’ Index (PMI) increased to 49.8 in May 2025 from April’s 45.6, its highest in recent months. While this upward trend marks progress, the index remains below the 50-point threshold that distinguishes expansion from contraction. It indicates that although conditions are stabilizing, business sentiment and output are still cautious and far from robust.

The main drag on Vietnam’s manufacturing outlook continues to be export demand, especially from the US. Uncertainty surrounding tariffs and supply chain disruptions has weakened new orders, with overseas demand declining even faster than domestic. Industries such as electronics and textiles, which are heavily reliant on the US market, have reported major setbacks. Despite this, domestic production showed a modest rebound, aided by slightly improved tariff clarity and strategic adjustments by manufacturers such as extended shifts and capacity realignment.

Lower Input Costs Offer Temporary Relief Amid Depressed Demand

To stimulate weak demand, many suppliers have lowered prices, leading to reduced input costs. While this offers temporary financial relief for price-sensitive industries such as consumer goods and low-margin exporters, it also reflects prolonged demand weakness. The reduction in material costs may help improve short-term profit margins, but could simultaneously cap revenue growth if prices stay low and order volumes don’t rise.

There’s a mild improvement in business confidence, attributed to a more predictable tariff environment. However, skepticism remains, especially regarding potential abrupt changes in policy and ongoing global demand uncertainty. While the May PMI shows a more positive trajectory, it has not yet restored long-term investor confidence, and many manufacturers remain hesitant to scale operations aggressively.

Regional Comparison Highlights Vietnam’s Vulnerability

The broader Asian manufacturing context paints a similarly fragile picture. PMI levels in Japan (49.4), South Korea (47.7), and China (also contracting) highlight that Vietnam’s challenges are part of a regional trend driven by global trade disputes and uneven recovery. With Vietnam’s high trade openness, its vulnerability to global fluctuations becomes more pronounced, especially as intra-ASEAN demand remains tepid.

In electronics hubs like Yen Phong and VSIP, firms are scaling back shifts and focusing on higher-margin contracts. In textiles, exporters are shifting attention to markets like Europe and Japan, but face reduced price competitiveness due to elevated logistics costs and stricter quality requirements. The challenge lies in sustaining production levels while navigating fewer orders and longer sales cycles.

Technology, Market Diversification, and State Support

To weather this period, Vietnamese firms are urged to invest in productivity-enhancing technologies, improve product quality, and diversify export destinations. Cost reductions from declining input prices may offer short-term breathing room, particularly for wood and agro-processing sectors. Yet, without a stronger rebound in global demand, these gains may be offset by falling selling prices.

State support is also critical. Policies that streamline bureaucracy, enhance infrastructure, and support digital transformation can help manufacturers transition from reactive adjustments to sustainable growth strategies. A coordinated push between the public and private sectors will be essential to unlock the full recovery potential of Vietnam’s industrial economy.

Vietnam’s manufacturing sector is showing resilience, but recovery is tentative and uneven. Unless global trade conditions improve and domestic reforms accelerate, the path forward will require continued vigilance, adaptability, and investment in innovation to ensure that this fragile recovery becomes durable and broad-based.

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China–U.S. Trade War

Commodity

Escalating Tensions in Strategic Mineral Trade

China’s suspension of rare earth mineral and magnet exports since April 2025 has added new urgency to global concerns over resource dependency. These materials—vital for manufacturing electric vehicles, drones, semiconductors, and defense systems—have become a flashpoint in an already fragile geopolitical trade environment. Although Beijing has not formally linked this move to any political retaliation, its timing aligns with increasing trade friction between China and major economies, particularly over technological dominance and supply chain control.

This disruption is not just symbolic; it presents a real operational risk for companies reliant on precision components, many of which incorporate rare earth elements like neodymium and dysprosium. Major automakers from Germany, India, and the US have issued stark warnings about looming production halts if supply channels remain blocked. Notably, shipments have stalled at several Chinese ports while the country finalizes a new management system for rare earth exports, deepening the short-term unpredictability.

Industrial Impact and Global Scramble for Alternatives

The rare earth supply crisis affects entire industrial ecosystems. In Germany, the auto industry association VDA has emphasized that continued shortages could “inevitably lead to production stops.” In India, Bajaj Auto—a leading EV manufacturer—has flagged potential setbacks to its electric vehicle output. Similarly, in the US, major players such as General Motors, Toyota, and Hyundai have petitioned the federal government to intervene, citing urgent needs for materials used in gearboxes, sensors, electronic systems, and motors.

According to the Auto Innovation Alliance, a sustained shortage would severely impair the production of essential components, from steering systems to EV batteries. What makes the issue more pressing is the lack of ready alternatives. While some rare earth deposits exist in the US, Australia, and parts of Africa, refining capacity remains overwhelmingly concentrated in China, giving it a strategic chokehold on the supply chain.

Policy and Diplomatic Responses Taking Shape

In response to the crisis, several governments and industry coalitions are mobilizing diplomatically. Japan is preparing a high-level trade delegation to Beijing, aiming to negotiate expedited approvals. European diplomats are also pushing for emergency meetings with China’s Ministry of Commerce. Meanwhile, Indian authorities have begun direct negotiations to unlock supply routes for their auto sector. These moves suggest a growing realization among policymakers that rare earths are no longer just raw materials—they are geopolitical tools.

Former U.S. Assistant Secretary of State for Energy Resources Frank Fannon has warned that such a scenario was foreseeable. He advocates for an immediate investment push into domestic extraction and processing capabilities, framing the issue as one of national resilience. His perspective reflects a broader consensus: building diversified and reliable rare earth supply chains is no longer optional but imperative.

Toward Strategic Resource Security

The rare earth export restrictions from China have exposed a structural flaw in global manufacturing: overdependence on a single supplier for strategic inputs. The automotive and electronics industries are especially vulnerable, and unless diversified sourcing and domestic capabilities are accelerated, disruptions may become recurring threats.

In the short term, diplomatic pressure may yield temporary relief, but long-term stability hinges on strategic investments in rare earth mining, processing infrastructure, and recycling technologies across multiple regions. The current crisis, while disruptive, may catalyze a much-needed global rethinking of supply chain sovereignty and industrial policy.

Source: Reuters

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Economic

Russia and Ethiopia: A Strategic Alignment for De-Dollarization

Amid growing geopolitical tensions and economic sanctions, Russia has found a like-minded partner in Ethiopia within the expanding BRICS alliance. Both countries have expressed strong commitment to reducing reliance on the U.S. dollar, seeking greater monetary independence and transactional efficiency through the use of their own currencies—the ruble and the birr.

This cooperation reflects a strategic response to mounting external pressures. For Russia, the push to “de-dollarize” is an economic survival tactic against the West’s financial blockade. Ethiopia, on the other hand, views this shift as an opportunity to diversify its trade exposure, bolster regional economic integration, and reduce transaction costs.

From Principles to Practice: Bilateral Currency Agreements Take Root

Early 2025 marked the beginning of formalized trade settlements between Russia and Ethiopia using local currencies. Though still in its infancy, the bilateral arrangement has been publicly endorsed by both governments. Ethiopian Ambassador to Russia, Genet Teshome Jirru, confirmed that transactions in ruble and birr have started and are expected to grow as technical infrastructure and mutual confidence improve.

While exact figures remain undisclosed, both nations stress the long-term benefits of currency localization—chiefly avoiding exchange rate volatility, bypassing global financial bottlenecks like SWIFT, and stimulating domestic industries by reducing dependency on third-party currencies.

Broader Implications for Global Trade and BRICS Strategy

The collaboration between Russia and Ethiopia signals a larger trend in the Global South: the desire to reshape the post-Bretton Woods monetary system. The BRICS bloc—especially its expanded cohort—has become the leading voice in championing a multipolar financial order. This includes discussions around creating a BRICS currency, reinforcing national payment infrastructures, and advancing digital currency research as alternatives to the dollar.

Other regions have followed similar paths. China, Brazil, Argentina, and several ASEAN countries have recently intensified efforts to trade using local currencies or regional digital payment systems. Together, these shifts hint at a systemic recalibration—one where global economic influence is no longer tethered solely to the U.S. Federal Reserve’s decisions.

Challenges and Long-Term Outlook

Despite enthusiasm, challenges remain. Technical compatibility between financial systems, trust in currency stability, and capital control regulations may hinder widespread adoption. Nonetheless, the direction is clear: as emerging economies become more assertive and interconnected, they are actively shaping a new global financial architecture.

Russia’s alignment with Ethiopia may seem modest in volume compared to its trade with China or India, but symbolically, it underscores BRICS’s mission to amplify economic sovereignty among developing nations. If successful, such initiatives could inspire other bilateral or regional currency agreements—further decentralizing global finance.

The Russia-Ethiopia initiative is more than a workaround for sanctions—it is a deliberate move toward a de-dollarized, decentralized economic system. As more nations re-evaluate their dependence on the U.S. dollar, the prospect of a multipolar monetary environment becomes increasingly plausible. This could reshape how trade is conducted, how currencies are valued, and how economic alliances are formed, especially within the BRICS framework and beyond.

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Commodity

China–U.S. Trade War

A Sharp Turn in U.S. Trade Policy

On June 3, 2025, President Donald Trump signed an executive order raising tariffs on all imported steel and aluminum products to 50%, effective immediately the following day. This escalation marks a significant intensification of U.S. trade protectionism and follows a series of aggressive tariff moves by the Trump administration aimed at reducing what it describes as “unfair trade practices” and “global overcapacity.”

According to the White House, the policy aims to strengthen critical domestic industries that have been undercut by subsidized foreign production, particularly from countries such as China. However, this move comes with exceptions: imports from the United Kingdom will remain subject to the prior 25% tariff rate, as both sides continue negotiations on quotas and tariff-related issues under an existing trade agreement.

Industry Backdrop and Political Signaling

Trump's announcement was made during a speech at a US Steel facility in Pennsylvania—an intentional backdrop underscoring his administration’s industrial nationalism ahead of the 2026 midterm elections. On his social platform, Truth Social, he emphasized the importance of reviving the U.S. steel and aluminum industries, linking tariff increases to national security and economic independence.

The move is not entirely unprecedented, as the Trump administration had already implemented a base 10% tariff on a broad array of imports earlier in April. What distinguishes the latest escalation is the swiftness of its enforcement and the scale of its coverage, which risks disrupting a wide range of global supply chains in construction, automotive, aerospace, and manufacturing sectors.

Global Reaction and Rising Risk of Retaliation

The European Union responded immediately, warning that it has prepared retaliatory measures should negotiations fail. EU officials argue that such unilateral increases violate World Trade Organization norms and risk undermining fragile recovery efforts in the global economy. Over the past weekend, the EU Trade Commissioner publicly stated that they were reviewing countermeasures, including potential duties on American agricultural and industrial goods.

Other major trading partners are watching closely. Many are currently engaged in fast-tracked negotiations with the U.S. after the broader 10% tariff was announced in April. These discussions now take on a greater sense of urgency, as several countries hope to avoid being targeted by the July implementation deadline for retaliatory tariffs.

Implications for Markets and Trade Dynamics

Economically, this tariff escalation could drive up costs for U.S.-based manufacturers that rely on imported raw materials, potentially feeding into consumer price inflation—a concern already highlighted by some members of the Federal Reserve. At the same time, the possibility of a global tit-for-tat trade war remains high. If retaliation materializes, particularly from the EU, India, or Japan, it may affect U.S. exports in sectors ranging from agriculture to electronics.

Strategically, Trump’s tariff move reinforces his administration’s broader goal of industrial reshoring and domestic capacity building. But in the short term, it introduces volatility into trade negotiations and global supply networks, further complicating efforts to stabilize prices and foster cross-border cooperation.

While the new 50% tariff may provide symbolic and short-term political benefits for the U.S. steel and aluminum sectors, the long-term implications are more complex. The heightened risk of retaliation, rising input costs, and diplomatic strain could erode U.S. competitiveness in downstream industries. As negotiations intensify in the coming weeks, much will depend on whether trade partners can reach exemptions or reciprocal agreements—or whether the global economy will be drawn deeper into a new era of protectionism.

Source: The Economic Times

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Economic

Structural Legacy of the Employment Ice Age

The Japanese government is taking targeted steps to aid workers in their 40s and 50s—those most affected by the job scarcity and wage stagnation that followed the 1990s asset bubble collapse. This demographic, often overlooked in modern employment reforms, continues to grapple with low income and limited career stability. In response, Tokyo plans to restart mid-career civil service recruitment exams in 2026 and expand access to vocational retraining. Safe public housing is also part of the support framework, indicating a comprehensive social welfare approach.

A Shift in Job-Hopping Culture and Wage Dynamics

Traditionally, Japan’s labor market has been defined by long-term employment and low mobility. However, a tight labor market is shifting norms. According to Recruit Agent and labor economist Yusuke Aoki, job switching is becoming more common, which could put upward pressure on wages. This marks a significant cultural and structural shift, suggesting that the Japanese workforce is slowly transitioning from rigidity to flexibility.

Despite this, real wages continue to fall, recording a 2.1% year-on-year drop in March 2025—the third consecutive monthly decline. Persistent inflation, especially in food prices, is eroding consumer purchasing power even as spending has surprisingly exceeded forecasts. This disconnect poses a serious threat to Japan’s export-reliant growth model, which now faces added uncertainty from global tariff policies and fragile monetary conditions.

Corporate Recruitment and Strategic Adaptation

With labor increasingly scarce, Japanese companies are altering their recruitment practices. Firms like MerryBiz Inc. are providing post-interview feedback to rejected candidates in hopes of building goodwill and attracting them in future cycles. This signals a major shift: companies are no longer only evaluating talent—they are now actively marketing themselves to prospective employees.

Data from Recruit Co. shows only 36.1% of companies successfully met their graduate hiring targets for 2024, the lowest since 2012. This labor shortage is driving innovation in HR strategies. For instance, Chiba Kogyo Bank now allows graduates who initially rejected offers to reapply within three years with a simplified interview process.

Future Pathways for Japan’s Labor Market

Japan’s labor market sits at a critical juncture. While the employment ice age generation still needs support, new dynamics—rising job mobility, changing corporate recruitment strategies, and wage pressure—present opportunities for structural reform. If the government’s retraining initiatives and mid-career entry programs prove effective, and if companies continue to adapt to labor scarcity with flexible, inclusive practices, Japan could gradually transition to a more resilient and equitable employment landscape.

Yet much hinges on how effectively policymakers address inflation, productivity stagnation, and the trade-related uncertainties looming over the global economy.

Source: The Japan Times

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Economic

Fed Faces Delicate Balance Between Tariffs and Inflation Control

The U.S. economy is showing signs of resilience, especially in the labor market, ahead of the May 2025 jobs report. However, President Trump’s decision to double tariffs on steel and aluminum imports—from 25% to 50%—has sparked a new policy dilemma for the Fed. This protectionist move has renewed fears of inflation and supply chain disruption, reminiscent of COVID-era challenges.

According to the Fed’s May policy meeting minutes, there is no clear consensus on how to proceed. Some officials believe tariff-driven inflation is transitory and support future rate cuts. Others argue that higher production costs from intermediate goods—like metals—could cause inflation to persist longer than expected.

Diverging Views Within the Fed: Transitory or Structural Inflation?

Governor Chris Waller represents the more dovish camp, suggesting that the inflation impact of tariffs will be short-lived and should not factor heavily into interest rate decisions. His view aligns with the White House, which maintains that price increases are temporary and manageable. Waller sees no urgent need to adjust rates in response to the latest trade moves and expects inflation to remain anchored through late 2025.

However, more hawkish voices like Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan urge caution. Kashkari fears that ongoing trade negotiations could drag on for months or even years, increasing the chance of retaliatory tariffs and sustained price instability. Logan emphasizes that while rate cuts may offer short-term relief, over-easing could ignite a dangerous inflation cycle.

Real-World Impacts and Policy Scenarios

Fed officials are especially concerned about how tariffs on key industrial inputs like steel and aluminum could ripple through U.S. manufacturing and retail prices. Some also warn that supply chain disruptions could re-emerge if global trade tensions escalate.

Still, others argue that weaker consumer demand, potential tax negotiations, and competitive pressures among firms to hold down prices may soften the blow. Markets seem to be pricing in a neutral-to-dovish stance, with swaps suggesting a pause in rate changes for now but room for easing if the economy deteriorates later in the year.

Fed Policy Hinges on Data and Trade Outcomes

Ultimately, the Fed’s course will depend heavily on upcoming inflation data, labor market performance, and the trajectory of trade negotiations. If tariff effects prove manageable, as Waller predicts, the Fed may retain flexibility to cut rates. But if inflation expectations start to unanchor, more officials could lean toward keeping policy tight despite pressure from the White House.

The June FOMC meeting and next CPI report will be crucial in shaping whether the Fed adopts a wait-and-see approach or pivots more decisively in response to political and economic shocks.

Source: Yahoo Finance

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Economic

Commodity

Oil Market Finds Balance Between Supply Risk and Demand Headwinds

Crude oil prices entered a consolidation phase on Wednesday after rebounding strongly earlier in the week. Brent remained above $65 per barrel, marking a three-week high, while West Texas Intermediate hovered near $63. The rebound was primarily underpinned by a substantial 3.28-million-barrel draw in U.S. crude inventories, as reported by the American Petroleum Institute. If confirmed by official data, this would be the largest weekly decline since March, reflecting resilient consumption or tighter supplies in key hubs.

At the same time, relief came from Canada, where rainfall slowed the advance of wildfires that had disrupted approximately 7% of the country’s oil production. One operator resumed output on Monday, reducing fears of prolonged supply constraints. However, the fires had already threatened flows to major U.S. storage facilities, adding a risk premium to prices earlier in the week.

OPEC+ Output Hikes Signal Supply Confidence, but Demand Risks Linger

OPEC+, led by Saudi Arabia, began implementing a gradual production increase aligned with market expectations. While this move alleviated fears of a sudden supply glut, the group’s shift away from strict output cuts raised longer-term concerns about price sustainability. Bloomberg’s survey showed that while Saudi output rose, it remained below the maximum permissible under the group’s agreement—indicating some restraint remains in play.

Despite the moderate supply expansion, the oil market remains volatile, with seasonal demand and geopolitical risks—including wildfires and inventory shifts—providing short-term support. However, the long-term price outlook is clouded by macroeconomic weakness.

Economic Outlook, Trade Tensions Add to Volatility

The OECD’s latest forecast downgraded global GDP growth to 2.9% for both 2025 and 2026, citing rising protectionism, inflationary risks, and trade disruptions. The United States is expected to be among the hardest-hit economies, particularly as President Trump pushes ahead with tariff hikes on key industrial imports like steel and aluminum. These measures could suppress industrial output and, by extension, energy demand.

In this context, oil faces a delicate balancing act. On one hand, immediate supply disruptions—like those in Canada—and inventory draws offer support. On the other, rising OPEC+ output and weakening global growth expectations create bearish undertones.

The near-term trend in oil remains slightly bullish, supported by supply-side jitters and strong U.S. inventory data. However, as noted by SDIC Essence Futures’ Gao Mingyu, the pace of OPEC+ supply restoration may limit the upside. Should Canadian wildfires worsen again or U.S. stockpiles continue declining, prices could find additional support. Conversely, any escalation in trade disputes or disappointing economic data could cap gains and reignite downside pressure.