Vietnam has successfully avoided a substantial 46 percent tariff that was set to take effect next week, reaching a new trade agreement with the United States.
Under this deal, Vietnam will face a minimum 20 percent tariff in exchange for opening its market to American products, including automobiles.
However, the agreement includes a significant 40 percent tariff on goods that are deemed to be transshipped through Vietnam to evade stricter trade barriers.
Washington has accused Hanoi of relabeling Chinese goods to bypass tariffs, raising concerns particularly for Vietnam’s manufacturing sector, which heavily relies on raw materials from China.
Capital Economics notes that this deal appears to be influenced significantly by the dynamics between the US and China.
The firm highlighted that the regulations regarding transshipment could be perceived as a provocation in Beijing, especially if similar stipulations appear in future deals.
In response, China’s foreign ministry spokesperson Mao Ning stated that negotiations and agreements should not target or undermine the interests of third parties.
While news of the deal initially led to a surge in shares of apparel and sports equipment companies with significant operations in Vietnam, that optimism quickly turned to caution as more details emerged.
Dan Martin from Asian business advisory firm Dezan Shira & Associates remarked, “This is a much better outcome than a flat 46 percent tariff, but I wouldn’t celebrate just yet.”
He stressed that the effectiveness of the agreement hinges on how the US interprets and enforces the concept of transshipment.
“If the US broadens its scope and begins scrutinizing products containing foreign parts — even those with genuine added value created in Vietnam — it could adversely affect numerous compliant companies,” he warned.
Vietnam’s foreign ministry spokesperson acknowledged that negotiators continue to engage in detailed discussions to finalize the agreements.
Despite the optimism surrounding the deal’s announcement by President Donald Trump on his Truth Social platform, the specifics of the transshipment arrangement remain unclear.
Adam Sitkoff, chief of the American Chamber of Commerce in Hanoi, pointed out that the deal provides Vietnam with a level of trading certainty not available to many US partners.
However, he also indicated that effectively evaluating the deal’s advantages and disadvantages is challenging without full details on the implications of the tariffs.
Bloomberg Economics has forecasted a potential loss of a quarter of Vietnam’s exports to the US in the medium term, which could threaten more than 2 percent of the country’s gross domestic product (GDP) due to the trade agreement.
Jack Sheehan, head of regional tax at Asian legal and tax firm DFDL, explained that the Vietnamese government is now under pressure to enforce country-of-origin rules effectively.
Yet, the uncertainty surrounding the definitions and enforcement of transshipping regulations may lead to diplomatic strains.
Rana Sajedi, a Bloomberg Economics expert, underscored the potential repercussions of Vietnam’s agreement with the US.
She noted, “The looming question now is how China will respond.”
Any retaliatory actions from Beijing could significantly impact Vietnam’s economy, particularly in light of the higher tariffs on goods classified as transshipped through Vietnam.
image source from：eurasiantimes
