“Manufacturing in Vietnam is cheaper than China” — that sentence is half true. Vietnamese labour is cheaper, but total landed cost — the price at the US customer’s hands — has at least 10 components, and Vietnam wins some and loses others. This article builds the complete landed-cost model comparing Vietnamese vs Chinese production for US-bound goods — replacing “which country is cheaper” with the right question: “for my product, which country is cheaper?”
The 10 components of landed cost
(1) Direct production cost (labour + materials + energy + depreciation). Vietnam wins on labour (50–70% cheaper than coastal China); China wins on materials (sourced locally, no freight) and productivity (higher automation). For labour-intensive goods (garments, simple assembly): Vietnam wins big. For material/technology-intensive goods: the gap narrows.
(2) Inland logistics (factory → port). China: the world’s best domestic infrastructure, low cost. Vietnam: improving but logistics-cost-to-GDP still high (Cat Lai congestion, limited highways). Gap: Vietnam 2–5% more expensive on goods value.
(3) Ocean freight to the US. Both have direct US sailings — rates comparable (seasonal swings, negligible structural gap). Tie.
(4) US import duty. The decisive component. Chinese goods face Section 301 + reciprocal + AD/CVD duties (by sector) — combined duties reaching dozens of percent. Vietnamese goods (meeting origin) face ordinary MFN rates (far lower, many lines 0–15%). The duty gap is typically 15–40 percentage points — larger than all production-cost gaps combined. Vietnam wins overwhelmingly.
(5) Origin-compliance cost. For low duties, Vietnamese goods must prove origin (C/O, origin rules, UFLPA/EUDR traceability where relevant). Cost: traceability systems, testing, advisory — about 1–3% of goods value. Chinese goods skip this (but pay high duties). China wins slightly here.
(6) Investigation risk (expected cost). Vietnamese goods carry probability of anti-circumvention probes — expected cost = probability × duty rate × shipment value + defence counsel. Sectors with precedents (wood, steel, solar): add 3–8% risk cost. No-precedent sectors: 1–2%. China wins here (risk already “realised” as duty, no longer probabilistic).
(7) Inventory and time. The “Chinese components → Vietnamese assembly → US” chain runs 1–2 weeks longer than China’s domestic chain — higher working-capital cost and disruption risk. Add 1–2%. China wins slightly.
(8) Cross-border management cost. Running a Vietnamese plant from China: travel, interpretation, remote quality control, two-country legal advisory — 2–4% extra management cost vs domestic management. China wins.
(9) Investment incentives. Vietnam: CIT incentives, land-rent relief under Investment Law 143/2025 — cutting 3–5% of long-run cost. China: fewer incentives for ordinary manufacturing today. Vietnam wins.
(10) FX and political risk. VND/USD has been steadier than CNY/USD in many periods; US trade-policy risk toward China is far higher. Hard to quantify but leans Vietnam for US-bound goods.
Three product scenarios: what the numbers say
Scenario A: cotton T-shirts (labour-intensive, big US duty gap). Vietnamese production 20% cheaper, US duties 25 points lower → Vietnam wins overwhelmingly, landed cost 30–40% lower. Why garments relocated fastest.
Scenario B: wooden cabinets (US duties already on Vietnamese goods). Vietnamese production 10% cheaper, but US duties on Vietnamese goods already high (near China’s) + probe risk → the gap narrows to 5–10%, possibly negative with risk priced. Why wood furniture must be modelled carefully — “just move to Vietnam” doesn’t automatically win.
Scenario C: precision electronic components (little labour, many Chinese parts). Vietnamese production 5% cheaper (components still Chinese), US duties 15 points lower → Vietnam wins 10–15%, but high circumvention risk (large Chinese-component share) — invest in traceability and gradual localisation.
Building the landed-cost model for your product
Step 1: list all 10 components above with your product’s real figures (not sector averages). Step 2: compute 3 duty scenarios (base / investigated / raised duties) — US tariffs are the largest and most volatile variable. Step 3: run a 5-year profile (rising Vietnamese wages, phasing incentives, FX moves) — never make a 10-year decision on year-one figures. Step 4: add one-off conversion costs (plant setup, machinery moves, training) amortised over 5 years — many projects “win” on landed cost but break even after 4–5 years, needing survivable cash flow. Tool: one spreadsheet with 10 component rows × 2 country columns × 3 duty scenarios = a decision matrix fit for the board.
Common cost-comparison mistakes
(1) Comparing only worker wages. Wages are 1 of 10 components — wage-based decisions are blind decisions. (2) Forgetting duties. Many “production cost” models omit US import duty entirely — while it’s the largest component. (3) Treating current duty rates as constants. US tariffs change with administrations — models need scenarios, not constants. (4) Ignoring compliance costs. Origin traceability, UFLPA, EUDR — these “new” costs can reach 3–5%, absent from old models. (5) Ignoring dead time. 6–12 months building a plant = 6–12 months with nothing to sell — rarely modelled, very real opportunity cost.
Stress-testing the model — the red-team review
Before presenting the matrix to the board, red-team it: assign one person to attack every assumption — the wage-inflation rate, the duty scenarios, the logistics quotes, the investigation probability. The assumptions that survive attack are the ones to present; the ones that collapse get replaced with ranges, not point estimates. Pay special attention to correlated risks: a US recession simultaneously cuts your volumes, squeezes freight rates (good) and triggers more aggressive trade enforcement (bad) — single-variable sensitivity analysis misses these interactions. Run at least one combined downside (duties up 10 points, wages up 15%, a 6-month probe delaying shipments) and check the business still survives — if the model only works in the base case, it’s a hope, not a plan. Finally, date-stamp every input: a landed-cost model is a perishable good, and a 2026 model presented as timeless truth in 2028 is how companies walk into traps. Refresh the model every year — stale numbers are worse than no numbers because they inspire false confidence.
Checklist: building the landed-cost model
1. List all 10 components — never omit duties and compliance costs. 2. Use your product’s figures, not sector averages. 3. Run 3 US duty scenarios (base / investigated / raised). 4. Five-year profile: wage rises, phasing incentives, FX. 5. Add one-off conversion costs and compute payback time. 6. Price the opportunity cost of plant construction time. 7. Assess probe risk by sector precedent. 8. Cost origin compliance (C/O, traceability, testing). 9. Compare against the closest product scenario (A/B/C). 10. Present as a matrix — 10 components × 2 countries × 3 scenarios — boards decide on matrices, not gut feel. 11. Refresh quarterly — US tariffs and freight move fast. 12. Red-team the model before the board sees it; date-stamp every input. 13. Assign one owner: a landed-cost model with no owner rots — make quarterly refresh someone’s explicit KPI, not everyone’s vague intention. The model is only as honest as its least comfortable assumption — reward the analyst who brings bad news early. A model nobody challenges is a model nobody should trust with a factory decision.
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This article has been quality-reviewed by the FLAW AI Legal Council
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