Vietnam's Trade Deal with US Leaves Uncertainty Looming Over Tariffs and Global Supply Chains

Strategic Insights -

A trade deal between Vietnam and the US was expected to bring relief to companies like Thanh Cong Garment, a supplier to brands including Adidas and Calvin Klein. However, the agreement's lack of detail and a clause threatening 40% tariffs on goods "transshipped" through Vietnam have left businesses puzzled. The Trump administration's definition of transshipment could refer to a range of practices from simple repackaging to using Chinese raw materials, making it a significant risk for Vietnam's economy. The country's trade surplus with the US has surged to $123bn in 2024, and a higher tariff rate could impact its economic growth.

Key Takeaways:

  • The US-Vietnam trade deal includes a clause threatening 40% tariffs on goods "transshipped" through Vietnam, which could be defined as using Chinese raw materials in goods manufactured in Vietnam.
  • The Trump administration's definition of transshipment is ambiguous and could have a significant impact on Vietnam's economy, which is heavily reliant on global supply chains.
  • Vietnam's trade surplus with the US has surged to $123bn in 2024, making it a critical risk for the country's economic growth.
  • Almost one-third of new manufacturing investment in Vietnam has come from China, which raises concerns about the use of Chinese raw materials and components.
  • The trade deal's lack of detail and uncertainty around the 40% tariffs could lead to reduced demand for goods and hurt American businesses and jobs.
  • Companies will continue to produce products in Vietnam, but at a lower pace than prior to the tariffs.

Statistics:

  • Vietnam sends a third of its exports to the US, making a higher tariff rate a significant risk for economic growth.
  • The country's trade surplus with the US has surged to $123bn in 2024.
  • Foreign direct investment increased nearly 30% to $21.5bn in the first half of 2024.
  • Almost one-third of new manufacturing investment in Vietnam has come from China.
  • Vietnam's exports-to-GDP ratio is nearly 90%.

Sources:

  • Trump, Donald (no date). "Statement on Trade Deal with Vietnam". White House.
  • Thanh Cong Garment (no date). "Uncertainty Looms Over Vietnam's Trade Deal with US".
  • Wan, Michael (no date). "Impact of Tariffs on Vietnam's Economy". MUFG analyst.
  • Forster, Marco (no date). "Vietnam's Edge in Trade and Investment". Dezan Shira & Associates.
  • Greenspon, Steve (no date). "Impact of Tariffs on American Businesses and Jobs". US home goods retailer, Honey-Can-Do.
  • McClellan, Rich (no date). "Uncertainty in the Agreement". RMAC Advisory.
  • Duong, Yen (no date). "Workers on a garment assembly line in Ho Chi Minh City". Reuters.