Vietnam Trade Deal with US: Tariff Rate of 20%

Vietnam Trade Agreement: Model for Future Deals

The U.S. and Vietnam reached a trade deal reducing tariffs on Vietnamese imports from 46% to 20%, with Vietnam agreeing to impose a 40% duty on goods transshipped from other countries, mainly targeting China’s practice. This deal signals potential similar agreements with other emerging Asian markets but raises concerns over higher tariffs and transshipment duties. Meanwhile, trade negotiations between the U.S. and the European Union remain complicated and uncertain, with no clear agreement expected soon.

The key takeaway for future deals with the US is that countries will need to reduce some trade with China. This happened in the UK deal and now it is part of the Vietnamese deal. In Trump’s first term, China was able to avoid tariffs by transshipment. Now with this deal, the transshipment loophole is being targeted as can be seen by the 40% tariffs on transshipped goods. The pressure is clearly placed on Vietnam to enforce this and prevent transshipment practices. This is critical since the US is Vietnam’s most important market.

Key Points:

• U.S. cuts tariffs on Vietnamese imports from 46% to 20%.
• Vietnam agrees to 40% duty on transshipped goods, addressing China’s transshipment.
• Vietnam’s exports to the U.S. reached $142 Billion last year. US imports to Vietnam were $13 billion last year; China’s were much larger but are impacted by tariffs.
• Of note, the $13 billion of US exports to Vietnam will face a 0% tariff rate.
• Emerging Asian markets could face similar trade deals and heightened tariffs.
• The deal reflects a tougher U.S. tariff stance, with China strongly opposed to the deal. This is because the tariff aims to prevent Chinese exporters from avoiding US tariffs by routing through Vietnam (transshipment).
• U.S.-EU trade talks remain difficult, with no immediate agreement likely; EU may retaliate with tariffs.

The agreement with Vietnam marks a strategic shift in U.S. trade policy, emphasizing stricter enforcement against countries that attempt to circumvent tariffs through transshipment. While lowering tariffs on Vietnamese goods provides some relief for exporters, the imposition of a 40% duty on transshipped products is a clear message aimed primarily at China’s extensive use of Vietnam as a conduit for exporting goods to the U.S.

Experts suggest that this move could prompt other Asian countries, including Malaysia, Thailand, and Indonesia, to negotiate similar terms with the United States. However, these nations may face tough negotiations, as the U.S. is likely to maintain or even increase tariff rates while demanding stringent measures to prevent transshipment.

On the European front, trade relations remain tense, with talks between the U.S. and EU stalled due to disagreements over tariffs and regulatory standards. The European Union has warned of retaliatory tariffs if the U.S. continues to impose duties on EU products, particularly steel and aluminium. This standoff has raised concerns among businesses and policymakers about the potential for escalating trade conflicts that could disrupt global supply chains.

In conclusion, while the U.S.-Vietnam agreement represents progress in resolving specific trade issues, it also underscores the broader complexities and challenges facing international trade negotiations in an era marked by protectionist policies and geopolitical tensions. Stakeholders will be watching closely as further developments unfold in both Asian and transatlantic trade relations.

Market Impact

The recent U.S.-Vietnam trade deal announced by President Trump caused mixed reactions among investors. Initially, stocks of companies with Vietnam exposure like Nike, Lululemon, and Deckers Brands surged but then declined after details revealed that tariffs on Vietnam-made goods would increase from 10% to 20%, and 40% on goods routed through Vietnam. This new tariff regime complicates the outlook for U.S. importers relying on Vietnamese manufacturing. Despite the initial volatility, investors are still evaluating the overall impact of the deal.

The U.S.-Vietnam trade deal is just one part of the broader global trade landscape, which remains dynamic and subject to rapid changes based on geopolitical developments and ongoing negotiations. While the immediate market reaction was volatile, the long-term impact will depend on how companies and governments manage these new tariff structures.

Analysts suggest that sectors most exposed to Vietnam imports—such as apparel, footwear, and electronics—may experience more pronounced effects. Meanwhile, investors might look for opportunities in companies that can efficiently navigate the complexities of international trade or that have less exposure to affected regions.