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Vietnam has secured a trade agreement with the United States that helps it avoid the harshest of Donald Trump’s proposed “reciprocal” tariffs. However, the deal has ignited fresh diplomatic strains between Washington and Beijing.
Vietnam currently ranks third in terms of trade surplus with the U.S., following China and Mexico. This position made it a prime target in Trump’s April 2 “Liberation Day” tariff offensive, with a steep 46% tariff initially planned.
I. New Trade Pact Eases Tensions—But Not for Everyone
1. Major Tariff Reduced in Exchange for Market Access
Under the agreement revealed on Wednesday, Vietnam will avoid the 46% tariff, settling instead for a minimum 20% duty. This concession comes in return for Vietnam allowing more American goods—such as automobiles—into its domestic market.
2. Transshipped Goods to Face Steep Tariffs
However, items routed through Vietnam in an attempt to dodge higher U.S. tariffs, a method known as transshipping, will be subject to a 40% levy. The U.S. has accused Vietnam of helping rebrand Chinese-made products to bypass duties.
II. The China Factor Looms Large
1. China’s Role in Vietnam’s Supply Chain
Although these rules are aimed at addressing transshipment, they could also be interpreted as a direct challenge to China. Many of Vietnam’s factories rely heavily on raw materials imported from China, making them vulnerable under these new regulations.
2. Beijing Reacts with Concern
Capital Economics observed that the inclusion of transshipment rules could “provoke Beijing,” particularly if similar clauses emerge in other upcoming agreements. China’s foreign ministry spokesperson, Mao Ning, responded by warning that international deals should not “target or damage” third-party interests.
III. Industry and Market Response
1. Market Reaction Initially Positive, Then Cautious
Upon news of the agreement, shares of major apparel and sporting goods companies with manufacturing bases in Vietnam rose on the New York Stock Exchange. However, those gains quickly reversed once more details were made public.
2. Experts Warn Against Premature Optimism
“This outcome is certainly better than the full 46% tariff, but it’s too soon to celebrate,” said Dan Martin from business advisory firm Dezan Shira & Associates in Hanoi. He emphasized the uncertainty surrounding how the U.S. would interpret and enforce the transshipment clause.
3. Risks Even for Rule-Following Companies
“If U.S. authorities adopt a broad interpretation and start scrutinizing products containing foreign components, even when significant value is added within Vietnam, many compliant companies could still be affected,” Martin added.
IV. Uncertainty Clouds Deal’s Full Impact
1. Vietnamese Officials Seek Clarity
A representative from Vietnam’s foreign ministry mentioned on Thursday that both sides were still working on the finer points of the agreement. However, Trump’s announcement—made via his Truth Social platform—provided few specifics on the transshipment provisions.
2. U.S. Business Leaders Request More Details
Adam Sitkoff, head of the American Chamber of Commerce in Hanoi, said the deal offered Vietnam a level of certainty that most other U.S. trading partners lack. Still, he cautioned, “It’s difficult to weigh the benefits and drawbacks without clarity on the actual implications of the tariffs.”
3. Outcomes Remain Unpredictable
“The real impact will depend on how these questions are answered,” Sitkoff said. “They could determine whether this deal brings relief or creates more problems.”
V. Economic and Diplomatic Implications
1. Threat to Vietnam’s Export Economy
Bloomberg Economics projected that Vietnam could lose up to 25% of its exports to the U.S. over the medium term due to this agreement, potentially affecting more than 2% of the country’s GDP. This would compel the Vietnamese government to rigorously enforce rules of origin for exports.
2. Defining Transshipment May Spark Fallout
Rana Sajedi of Bloomberg Economics emphasized that the vagueness surrounding how transshipment will be defined and regulated could lead to broader diplomatic fallout. “The real question now is how China will react,” she said.
3. China’s Potential Retaliation
Sajedi noted that Beijing has previously warned it would respond to agreements that undermine its trade interests. “The acceptance of higher duties on ‘transshipped’ goods could very well be seen as such a move,” she said, cautioning that any retaliatory action could disproportionately affect Vietnam’s economy.
Conclusion
While Vietnam’s new trade agreement with the United States spares it from the most severe tariffs, the lack of clarity around enforcement—particularly regarding transshipment—raises significant concerns. The deal not only reshapes trade dynamics with Washington but also risks stirring tensions with Beijing. Its long-term impact will hinge on how strictly the provisions are interpreted and the nature of China’s response.
