Optimism emerges over Vietnam's fresh trade agreement with the US amidst tariff hurdles
In a significant move, the United States has imposed a 20% tariff on imports from Vietnam, marking a notable change in the trade relationship between the two countries. This rate is double the previous 10% global tariff rate and lower than the 46% reciprocal tariff that former President Trump had threatened to impose in April.
The new tariff includes a key provision against transshipments, with a 40% duty on goods routed through Vietnam from third countries, particularly targeting goods from ASEAN neighbours attempting to circumvent tariffs by first shipping to Vietnam and then to the US. This aims to prevent nearshoring strategies exploiting Vietnam as a tariff gateway, although enforcement may be challenging and will require strict verification of rules of origin.
The tariff's impact on Vietnam's economy is significant. With an assumed demand elasticity of 1, the 20% tariff could put around 2.5% of Vietnam’s GDP at risk due to reduced export competitiveness and potential limitation on supply chain integration. However, the tariff differential might also accelerate some supply chain shifts that Vietnam has already been experiencing, potentially balancing some negative effects.
The tariff directly affects Vietnam's automotive exports to the US, which amounted to about $1.1 billion in 2024. Domestic manufacturers such as Vinfast have been expanding production and exports, and this tariff changes the cost dynamics for these products.
The deal also provides tariff-free market access for US exports to Vietnam.
The new tariff rate for Vietnamese exports to the US is lower than the 46% rate that was proposed by Trump in April, and it is higher than the previous rate. Augustine Ha Ton Vinh, a Vietnamese-American businessman and economic development strategist based in Hanoi, stated that Vietnam could live with the new tariff rate, while Ngo Minh Duc, founder of LCTV Financial Investment Joint Stock Company in Hanoi, said the new tariffs would be difficult but not insurmountable.
Vinh's comments imply that the current 20% tariff rate is the maximum the Vietnamese economy can manage without entering a crisis, while Duc's comments indicate some level of resilience in the Vietnamese economy to the new tariff rate.
The new tariff rate for US exports to Vietnam is lower than the tariff rate for Vietnamese exports to the US. This new trade deal represents a middle ground: less severe than Trump's original threat but still a significant shift from prior trade conditions with Vietnam, with important implications for US supply chains, especially in automotive and manufacturing sectors.
Augustine Ha Ton Vinh, who worked in the Reagan administration, and Vinh's involvement in Trump's campaign, adds a political dimension to the tariff discussions between the US and Vietnam. This new tariff deal is a compromise that avoids the harshest measures but still more than doubles the previous 10% tariff baseline. Other Trump-era tariffs had involved various higher rates on Chinese goods and specific commodities, along with targeted 25% tariffs on Venezuelan oil imports or adjustments in Section 232 tariffs on steel and aluminum, but the Vietnam tariff now stands as a country-specific negotiated rate rather than a blanket punitive measure.
- The new tariff rate for Vietnamese exports to the US is higher than the previous rate, but lower than the 46% rate that former President Trump had threatened to impose.
- The impact of the tariff on Vietnam's economy is significant, with an assumed demand elasticity of 1, putting around 2.5% of Vietnam’s GDP at risk due to reduced export competitiveness.
- The tariff directly impacts Vietnam's automotive exports to the US, particularly for domestic manufacturers like Vinfast, changing the cost dynamics for these products and potentially affecting their competitiveness in the US market.
