The recent terms of a new trade deal between the United States and Vietnam highlight a significant goal of the Trump administration: to tighten trade with China. President Donald Trump announced on Wednesday that the U.S. would impose a 20 percent tariff on Vietnamese goods, a reduction from the initial proposed rate of 46 percent. This news brought considerable relief to Vietnamese officials and businesses, given the country's heavy reliance on exports to American consumers.
While the reduction in tariffs is a positive development, Trump also stated that the U.S. would implement a 40 percent tax on transshipped goods. This includes products from other countries, primarily China, that are routed through Vietnam to the U.S. or goods that contain a significant amount of foreign components. As of Thursday, the specifics of the agreement remain murky, leading to various interpretations and concerns among economists and analysts.
Roland Rajah, the lead economist at the Lowy Institute, an Australian think tank, emphasized the importance of how the Trump administration defines transshipment. A broad definition could create significant hurdles for Vietnam's export capabilities. “If the U.S. defines it broadly, applying it to however much Chinese content there is in any sort of Vietnamese product, it’ll be a lot more trouble,” Rajah stated.
Vietnam finds itself in a precarious situation, balancing its relationship with the U.S. and its biggest trading partner, China. Pham The Anh, head of the economics department at the National Economics University in Hanoi, remarked that while Vietnam has been cautious in negotiations, it may not have a better option than accepting the current terms. The geopolitical landscape complicates Vietnam's position, especially following Trump's "Liberation Day" tariff announcement on April 2, which sparked warnings from Beijing against agreements perceived as detrimental to Chinese interests.
Chinese officials have openly criticized the deal, with spokespersons from the Chinese Commerce Ministry and Foreign Ministry urging all parties to engage in equal consultations and avoid agreements that undermine third-party interests. The ongoing tension highlights the delicate balancing act Vietnam must perform in navigating U.S.-China trade dynamics.
Vietnam has increasingly become a hub for manufacturing, particularly in the consumer electronics sector, thanks to the shifting supply chains influenced by the U.S.-China trade war. Major companies like Apple and Google have begun relocating parts of their production to Vietnam to avoid high tariffs associated with Chinese goods. However, many of these products still rely on Chinese financing and components. This situation complicates the definition of transshipment and raises questions about compliance with the new tariffs.
As evidence of this shift, Vietnamese data indicates that Chinese shipments to Vietnam surged by nearly 19 percent from January to May compared to the previous year, suggesting that Chinese companies are actively seeking ways to maintain access to the U.S. market through Vietnam.
The U.S. tariff on transshipped goods could potentially incentivize manufacturers to relocate production to Vietnam, thus drawing more business away from China. However, not all economists agree on the ease of this transition. Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted that closing one loophole could lead to the emergence of others, suggesting that countries like Indonesia and Morocco might become alternative routes for trade.
Additionally, the enforcement of rules against transshipment poses a significant challenge for Vietnam, which has built an economy intricately connected to global trade. Huong Le Thu, deputy director of the Asia program at the International Crisis Group, pointed out the difficulties in tracking and enforcing these rules, emphasizing that Vietnam is walking a fine line in its international relations.
As Vietnam continues negotiations with the Trump administration, the Ministry of Industry and Trade has ramped up inspections on product origins and introduced a new digital system for real-time monitoring of irregularities. However, implementing stricter measures risks provoking China, which is a concern for many analysts. Vietnam's future trade landscape will depend significantly on how these negotiations play out and whether other nations can secure more favorable tariff rates.
In summary, the trade deal with Vietnam not only sets a precedent for future agreements in Asia but also serves as an indicator of the broader implications of U.S.-China relations. As Vietnam navigates these complex waters, the outcomes will be closely monitored by its neighbors and global trading partners alike.
