“We firmly oppose any party striking a deal at the expense of China’s interests”, fumed Beijing today, as the US sealed a trade deal with Vietnam to further Donald Trump’s top foreign policy priority: containing China.
Vietnam was targeted with one of the highest rates of all during the US president’s “Liberation Day” tariff blitz back in April. Today’s agreement means that the Southeast Asian nation will be spared the punitive 46 percent rate that was due to take effect next week when Trump’s 90-day pause on “reciprocal tariffs” comes to an end. It will instead be subject to a 20 percent rate in return for opening its market to US products including cars.
While a 20 per cent tariff is still substantial, the big reduction will bring relief to the Vietnamese economy given how heavily it relies on exporting goods to American consumers. Vietnam is one of the world’s most trade dependent countries and the US buys 30 per cent of its total exports. It has the third-biggest trade surplus with America of any country after China and Mexico.
Today’s agreement will put pressure on other Asian countries to follow suit. If neighbouring Cambodia, for instance, fails to negotiate its way out of Trump’s steep 49 per cent reciprocal tariff rate, then factories there could relocate from there to Vietnam.
There is, however, an important caveat to Hanoi’s reduced tariff rate. Trump has simultaneously vowed to levy a 40 percent tax on any goods deemed to be “trans-shipped” – in other words, products originating from elsewhere that are routed through Vietnam to the US, or goods that include a significant proportion of foreign components.
It’s perfectly clear who this additional measure is aimed at: Beijing. It is all part of an effort to isolate Chinese goods from global supply chains and, in particular, to clamp down on Chinese companies using third countries in Asia to keep goods flowing to the US.
China and Vietnam share a border and their economies are incredibly intertwined.
The consumer electronics sector is a case in point. Trump’s first-term trade war with China drove companies such as Apple and Google to relocate parts of their supply chains out of China to avoid punishingly high tariffs. As a result, Vietnam became a vital hub for producing phones and tablets. But lines are blurred: many of these products are made in Vietnamese factories financed by Chinese money, using Chinese systems and components imported from China.
Hanoi also stands accused of deliberately re-labelling goods that come from China and make their way to the US.
The Vietnamese government wants to show that it is responding to Washington’s transshipment concerns: in recent months, as negotiations with the Trump administration unfolded, the country’s Ministry of Industry and Trade increased inspections on product origin.
But it finds itself in a tricky position, treading a careful line, because it is caught between its two biggest trading partners. It certainly doesn’t want to provoke the ire of partner number one. China has threatened to take “resolute countermeasures” if countries strike deals with Washington that damage its own interests.
Today’s trade deal, aside from threatening to undo the current US-China trade truce, will leave the Vietnamese government fearful of punishment from Beijing.
China has every reason to view Trump’s trans-shipment demands as a provocation. Yet whether or not any clampdown on trans-shipment will work is quite another thing.
It remains unclear exactly how the 40 per cent levy will be enforced but trans-shipment is notoriously difficult to trace. And a crackdown on Vietnamese goods that contain a significant proportion of Chinese components is arguably unrealistic: raw materials from China are the lifeblood of Vietnam’s manufacturing industries.
In reality, Chinese officials are well aware that the US will find it immensely difficult to enforce any trans-shipment rules, given the complexity of global trade and the ease with which companies bend the rules, claims Brian Wong, a professor at Hong Kong university. As a result, he reckons Beijing’s outraged rhetoric today is largely “performative”.
Caitlin Allen
Deputy Editor
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