Vietnam's textile and garment sector posted modest results in the first five months of 2026: $17.8 billion in exports, up just 0.6% year-on-year. Behind this flat growth lies a sector at a crossroads—rising labor costs, intensifying competition from Bangladesh and Cambodia, and stricter green compliance standards from Western buyers.
Export Growth Slows Amid Cost and Competition Pressures
According to data from Vietnam Textile and Apparel Association (VITAS), the export growth rate has decelerated from double digits in 2022 to a near standstill. The 0.6% increase indicates that while overseas orders have not dried up, the room for expansion has narrowed significantly. The full-year target of $50 billion requires an average monthly export of $4.6 billion for the remaining seven months—30% higher than the first five months' average of $3.56 billion.
Pressure comes from both ends. On the cost side, Vietnam's labor prices have been rising steadily, while competitors like Bangladesh and Cambodia maintain lower wage levels. On the demand side, European and American buyers are imposing stricter requirements on delivery time, product quality, and environmental compliance. Low prices alone can no longer pass supplier audits.
Green Compliance: A Non-Negotiable Ticket to Western Markets
The United States and the European Union together account for over 60% of Vietnam's textile and garment exports. Both markets are raising environmental bars: the EU's Carbon Border Adjustment Mechanism (CBAM) is already in its transitional phase, and the US has updated requirements on carbon emission reporting and renewable energy usage. For Vietnamese factories, obtaining green certifications has become a prerequisite for entering the procurement lists of brands like Zara and H&M.
VITAS Chairman Vu Duc Giang stated bluntly that green production capacity is now a "life-and-death" factor for retaining market share in the West. However, most Vietnamese textile firms are small and medium-sized subcontractors, lacking the capital to upgrade production lines, adopt clean energy, or establish carbon management systems—and the return on such investments remains uncertain.
Upstream Weaknesses: Trade Deal Benefits Unrealized
Vietnam has signed over 15 free trade agreements, including CPTPP, EVFTA, and RCEP. In theory, these agreements provide tariff reductions and customs facilitation. In practice, the benefits are limited because Vietnam's textile supply chain is only about 50% localized. Key materials like fabrics and accessories are heavily imported from China and South Korea. Under rules of origin, products using non-FTA inputs often cannot enjoy preferential tariffs.
This puts Vietnamese exporters in a double bind: they must meet Western green compliance standards while being unable to fully leverage tariff advantages due to supply chain gaps—squeezing profit margins from both sides.
Transformation Path: From Assembly Base to Tech-Driven Model
Industry experts recommend three strategic shifts:
- Investment upgrading: Government-led capital flow toward automated production lines and eco-friendly facilities, phasing out outdated, energy-intensive capacity.
- Supply chain localization: Policy support and industrial parks to nurture domestic fabric and accessory production, reducing import dependency.
- Market diversification: Leverage FTAs with the EU, Japan, and South Korea to explore emerging markets in the Middle East and Africa, reducing over-reliance on the US and EU.
These measures are not new, but execution speed and scale remain challenges. Vietnam's textile sector comprises over 6,000 enterprises, most of which are small and medium-sized factories lacking the funds and expertise for systemic transformation.
For Buyers - Reassess supplier capabilities beyond price: focus on carbon management, wastewater treatment, and social compliance. - Prioritize factories certified by OEKO-TEX, GOTS, or Higg Index, as they are more likely to pass brand audits. - Monitor Vietnam's upstream fabric supply progress; if local self-sufficiency improves, buyers can shorten lead times and reduce logistics costs through local sourcing.
For Trading Firms - Engage with VITAS's green certification training programs to prepare for carbon footprint accounting and renewable energy procurement. - Leverage EVFTA tariff windows to shift some orders from China to Vietnam, but ensure raw materials comply with rules of origin. - Track capacity developments in Bangladesh and Cambodia, which pose direct substitution pressure in low-end segments. Build barriers through differentiated products such as functional fabrics or high-end garments.
Vietnam's textile and garment industry is at a critical inflection point. Overseas demand provides a floor, but whether it can reach the $50 billion annual target depends on how quickly the sector can pivot from cost-driven growth to technology and green compliance-driven development before its cost advantage fully erodes.