Trump Says US and Vietnam Have Reached an Agreement on Tariffs

The Diplomat

20 hours ago

The United States and Vietnam have struck a trade agreement that sets a tariff of 20 percent tariffs on Vietnamese exports to the U.S., President Donald Trump announced yesterday, reducing tensions between the two nations days before a harsher tariff was set to go into effect.
In a post on Truth social, Trump said that the deal would involve a 20 percent tariff 'on any and all goods' exported to the U.S., while transhipped goods – those that pass through Vietnam to circumvent steeper trade barriers – would be hit with a 40 percent tariff. This is considerably lower than the 46 percent rate levied on Vietnam by Trump during his announcement of the sweeping 'reciprocal tariffs' on April 2.
'It is my Great Honor to announce that I have just made a Trade Deal with the Socialist Republic of Vietnam after speaking with To Lam, the Highly Respected General Secretary of the Communist Party of Vietnam,' Trump wrote.
He added that Vietnam had agreed to lower its tariffs on all U.S. imports to zero, something that Trump said would benefit the U.S. car industry in particular. 'It is my opinion that the SUV or, as it is sometimes referred to, Large Engine Vehicle, which does so well in the United States, will be a wonderful addition to the various product lines within Vietnam,' Trump said.
The deal was also confirmed by Vietnamese state media, which reported that on a call that Lam held with Trump yesterday, the two leaders 'welcomed the agreement reached by the two countries' negotiating teams on the Joint Vietnam-United States Statement on a Fair, Balanced, and Reciprocal Trade Agreement Framework.'
According to one report, Trump 'affirmed that the U.S. would significantly reduce reciprocal tariffs on many of Vietnam's export items and would continue to work with Vietnam to address obstacles affecting bilateral trade relations, particularly in areas prioritized by both sides.' Lam also proposed that the U.S. 'soon recognize Vietnam as a market economy and lift export restrictions on certain high-tech products,' and extended an invitation for Trump to visit Vietnam.
The announcement, which sent the shares of Nike and other Vietnam-based apparel makers climbing, comes just days before a July 9 deadline that Trump set to resolve negotiations before the imposition of the reciprocal tariffs, including the 46 percent tariff on Vietnamese goods.
The tariff threatened to throttle the trade between the U.S. and Vietnam, which has grown by leaps and bounds since the first Trump administration. Indeed, Vietnam was one of the great winners of Trump's first 'trade war' with China. As multinational firms set up factories in Vietnam to reduce their reliance on China as a manufacturing base, the country increased its export share to the U.S. in all categories of products. However, this has seen Vietnam's trade surplus grow rapidly, from $38.3 billion in 2017 to $123.5 billion last year.
This has attracted the attention of Trump's hawkish trade advisors, who say that the deficit has been pumped up by the use of Vietnam as a transshipment point for Chinese goods seeking to avoid previous U.S. tariffs. According to some reports, this represents both outright fraud – the slapping of 'Made in Vietnam' labels on Chinese-made products – and the establishment by Chinese companies of factories in Vietnam.
Exactly how prevalent the issue is remains a subject of dispute, but on Fox News in April, Trump's hawkish trade adviser Peter Navarro accused Vietnam of being 'essentially a colony of communist China.' During the recent tariff negotiations, Vietnam duly pledged to address the issue.
If confirmed, the terms of the agreement are set to significantly increase the price of the garments, electronics, and other goods that Vietnam exports to the U.S. However, Hanoi will likely be satisfied with this outcome, given the worst-case scenario. An earlier report by Reuters report suggested that Vietnam is hoping to get the 46 percent tariff 'reduced to a range of 22 percent to 28 percent, if not lower.'
This may depend on whether there are any other unpublicized elements to the deal. Last month, Reuters news agency reported that U.S. trade negotiators had sent a list of 'tough' requests to Vietnam that would force the country to 'cut its reliance on Chinese industrial goods imports,' which have spiked in line with the rise in Vietnamese exports to the U.S. According to the report, the Trump administration 'wants Vietnam-based factories to reduce their use of materials and components from China and is asking the country to control more carefully its production and supply chains.'
It also remains unclear whether the U.S. will agree to Lam's requests for the United States to recognize it as a market economy – a step that the Biden administration declined to take last year – and remove restrictions on the exports of high-tech products to the country.
In the immediate term, the deal seems set to stabilize the relationship between Vietnam and the U.S., which has grown in recent years in large part due to a shared concern for China's rising power. The longer-term impacts are harder to guess. It is clear that Hanoi was stung by the announcement of the 46 percent tariff, one of the highest rates in the world, and Prime Minister Pham Minh Chinh said that it 'did not reflect the strong bilateral relations between the two nations.' Despite this compromise, Vietnamese leaders will likely continue their efforts, telegraphed shortly after the April 2 tariff announcement, to diversify the country's export markets. Given the unpredictability of U.S. policy over the past few administrations, it is wise to cushion themselves against a future spasm of protectionism.