A significant trade agreement between the United States and Vietnam has emerged as President Donald Trump’s first complete pact with an Asian country. This deal, however, carries implications that it could escalate tensions between the US and China, raising concerns among various stakeholders in the region.
South Korean President Lee Jae-myung, who took office in June, is navigating a complex diplomatic terrain aimed at maintaining a working relationship with both Washington and Beijing. On Thursday, he expressed uncertainty regarding the conclusion of ongoing tariff negotiations with the US, set against a deadline approaching next week.
Vietnam currently enjoys the third largest trade surplus with the US, following China and Mexico. Targeted by a staggering 46 percent tariff under President Donald Trump’s new trade policies, the country is now poised for a more favorable arrangement. Analysts suggest that the US-Vietnam deal might serve as a template for future agreements with other Asian nations, including South Korea, Japan, and Thailand.
At his first press conference since taking office, President Lee described the tariff discussions as “clearly not easy.” He emphasized the need for a mutually beneficial agreement, stating, “What we need is a truly reciprocal outcome that benefits both sides and works for everyone.” However, both nations seem to struggle to clarify their respective demands and expectations.
The urgency of these negotiations is heightened by the impending expiration of President Trump’s 90-day pause on global reciprocal tariffs, which is due to end on July 9. This timeline potentially subjects South Korean exports to rates as high as 25%, a daunting prospect for the nation’s trade-dependent economy.
In addition to tariff concerns, there is growing apprehension that President Trump may seek a larger agreement that includes higher financial contributions from South Korea for the 28,000 US military personnel stationed in the country. This is part of an effort to bolster defenses against threats from North Korea. President Lee has advocated for patience, cautioning that a hasty agreement may not align with South Korea’s national interests.
The successful completion of the US-Vietnam trade deal also raises questions about how it may provoke a response from China. With the earlier 46 percent tariff now averted, Vietnam will instead face a minimum tariff of 20 percent on US imports, which includes significant products like automobiles.
Conversely, a 40 percent tariff will be imposed on goods that are transshipped through Vietnam to bypass US tariffs, which has triggered concerns regarding Chinese reactions. The US has previously alleged that Vietnam has engaged in relabeling Chinese goods to evade tariffs, therefore complicating the relationship even further given that raw materials from China are essential for Vietnam’s manufacturing sector.
Economic analysts note that this deal appears to be heavily influenced by broader geopolitical dynamics, particularly the relationship with China. According to Capital Economics, the deal’s stipulations regarding transshipment are likely to be seen as a provocation by Beijing, especially if similar terms are introduced in future agreements.
The stock market reacted to the announcement, with shares for companies in clothing and sporting equipment industries rising at first but declining swiftly once details of the deal were disclosed.
Vietnam’s government issued a statement confirming that the new agreement involves “preferential market access for US goods, including large-engine cars.” However, it provided limited information regarding the specifics of the transshipment arrangements, which President Trump announced via his Truth Social platform.
Expert opinions suggest that ambiguity surrounding the definition and enforcement of transhipping will likely have diplomatic implications. Rana Sajedi from Bloomberg Economics highlighted that the looming question remains: how will China respond? Given Beijing’s firm position, any trade agreements perceived as jeopardizing its interests are likely to draw a reaction from the Chinese government.
As the situation develops, it will be crucial for South Korea and its partners to navigate these complexities while striving toward more favorable trade conditions and regional stability.
image source from：aljazeera
