For Thanh Cong Garment, a Vietnamese provider to attire corporations together with Adidas, Calvin Klein and Columbia, a commerce deal to keep away from the worst of US President Donald Trump’s tariffs ought to have been an enormous aid.
Vietnam was certainly one of solely two nations that Trump stated has clinched a deal with the US by a July 9 deadline to keep away from his so-called reciprocal tariffs. This week, a lot of its neighbours obtained letters from the White Home threatening, in some circumstances, larger levies.
However the firm was left puzzling over the dearth of element within the settlement. Trump introduced a blanket 20 per cent tariff price, down from an preliminary menace of 46 per cent, however neither Vietnam nor the US has offered additional particulars or launched a remaining model of a commerce settlement.
Hanoi has additionally not confirmed the brand new tariff price, saying solely that the 2 sides had reached a “fair and balanced reciprocal trade agreement framework”, elevating additional uncertainty for corporations.
The US facet additionally included a clause threatening a 40 per cent price on items “transshipped” — or rerouted — by Vietnam, although it didn’t outline transshipment. However the clause has stoked considerations amongst companies that they are going to be penalised for utilizing Chinese language inputs, that are essential to produce chains in Vietnam.
Tran Nhu Tung, the corporate’s chair, famous that the 20 per cent base price was not a lot larger than the 15-17 per cent import tax at present paid by Vietnamese garment makers. However the transshipment clause may show to be an enormous problem.
“For the products that [have] materials from China but manufactured in Vietnam, what is the tariff to export to the US? 20 per cent or 30 per cent or 35 per cent?” stated Tung. “We need to wait.”
Vietnam, one of many largest suppliers of attire, footwear, electronics and different merchandise to the US, grew to become a producing powerhouse in recent times, attracting the likes of Apple, Nike and Samsung as corporations rushed to relocate manufacturing out of China to keep away from blowback from geopolitical tensions.
A lot of these corporations are clambering to determine the brand new commerce deal will work — and whether or not by transferring shortly, Vietnam has scored beneficial phrases or hemmed itself in.
“There is a sigh of relief that at least we know what the answer is for Vietnam . . . but there is still quite a lot of uncertainty in the agreement that exists right now,” stated Wealthy McClellan, founding father of the RMAC Advisory, whose purchasers embrace corporations and the Vietnamese authorities.
The transshipment clause is “the most ambiguous and most potentially risky portion of this agreement”, he added.
Vietnam has rather a lot at stake. One of many world’s most commerce dependent nations, with an exports-to-GDP ratio of practically 90 per cent, a 3rd of its exports go to the US alone, making a better tariff price a big danger for financial development.
Its commerce surplus with the US has surged in recent times to $123bn in 2024, the third-largest behind China and Mexico.
The nation additionally drawn accusations of serving as a conduit for Chinese language corporations searching for to keep away from Washington’s tariffs. A considerable amount of manufacturing funding in Vietnam has come from China, which accounted for nearly one in three new initiatives final yr.
Consultants say the Trump administration’s definition of transshipment may discuss with a spread of practices from merely repackaging Chinese language items with a counterfeit “made in Vietnam” label or to utilizing Chinese language uncooked supplies in items manufactured in Vietnam.
“The impact may be more limited if these 40 per cent tariffs are enforced solely for the most egregious practices of plain diversion of trade to avoid US tariffs,” stated MUFG analyst Michael Wan.
“In contrast, if there is a stricter determination of transshipment defined as a certain threshold of foreign value added, the impact . . . may be pronounced.”
Given the Trump administration’s curiosity in isolating China, companies worry a wider definition. This could be extraordinarily damaging for Vietnam, the place many companies depend on Chinese language uncooked supplies and parts, and warned that eradicating them could be unattainable.
“That is not realistic, that does not take into account how global supply chains work,” stated one American businessman in Hanoi. “It’s not just impossible for Vietnam. It’s impossible for everybody.”
One other huge unknown is how Vietnam’s tariff price will examine with these of its neighbours — a distinction that might be essential to Vietnam retaining its aggressive benefit as a producing hub. Trump has set a brand new deadline of August 1 for nations to return to an settlement with the US.
“Whether the negotiated tariff is ultimately a win or loss for Vietnam will largely depend on whether other ‘China plus one’ markets secure similar deals,” stated Marco Förster, Asean director at Dezan Shira & Associates.
Official knowledge for the primary half of the yr exhibits FDI elevated practically a 3rd to $21.5bn, suggesting that funding had not been scared off by the tariff uncertainty. Vietnam additionally has an edge in sure incentives and cheaper prices for producers.
However Steve Greenspon, founding father of US residence items retailer Honey-Can-Do, warned that even “a 20 per cent tariff will result in higher prices and inflation on goods”.
“This will certainly lead to reduced demand for goods, hurting American businesses and jobs,” he stated. “Companies will continue to produce their products in Vietnam, though at a lower pace than prior to the tariffs.”
For Tung, orders from US prospects for the third quarter had already dropped between 15 and 20 per cent, after a rush to ship orders earlier than the July 9 deadline. As much as 70 per cent of uncooked supplies for garment manufacturing, from cotton yarn to zippers and elastic, are sourced from China, making it troublesome for the business to keep away from being caught up in transshipment.
“Most of the garment materials of Vietnamese garment firms are imported from China,” stated Tung. “So it’s difficult to find another materials supplier apart from China.”
Information visualisation by Haohsiang Ko in Hong Kong
