Vietnam strikes US tariff deal, but risks Beijing backlash

Qatar Tribune

15 hours ago

Agencies
Vietnam's newly announced trade deal with the U.S. averts the most punishing of President Donald Trump's 'reciprocal' levies, but analysts warned it could lead to a fresh standoff between Washington and Beijing.
The Southeast Asian nation has the third-biggest trade surplus with the U.S. of any country after China and Mexico, and was targeted with one of the highest rates in the U.S. president's 'Liberation Day' tariff blitz on April 2.
The deal announced Wednesday is the first full pact Trump has sealed with an Asian nation, and analysts say it may give a glimpse of the template Washington will use with other countries still scrambling for accords.
The 46% tariff rate, which was due to take effect next week, has been averted, with Vietnam set to face a minimum 20% levy in return for opening its market to U.S. products, including cars.
But a 40% tariff will hit goods passing through the country to circumvent steeper trade barriers – a practice called 'transshipping.' Washington has accused Hanoi of relabeling Chinese goods to skirt its tariffs, but raw materials from the world's number two economy are the lifeblood of Vietnam's manufacturing industries.
'From a global perspective, perhaps the most interesting point is that this deal again seems in large part to be about China,' said Capital Economics.
It said the terms on transshipment 'will be seen as a provocation in Beijing, particularly if similar conditions are included in any other deals agreed over the coming days.'
Shares in clothing companies and sports equipment manufacturers – which have a large footprint in Vietnam – rose on news of the deal in New York.
But they later declined sharply as details were released.
'This is a much better outcome than a flat 46% tariff, but I wouldn't celebrate just yet,' said Hanoi-based Dan Martin of Asian business advisory firm Dezan Shira & Associates.
'Everything now depends on how the U.S. decides to interpret and enforce the idea of transshipment,' he added.
'If the U.S. takes a broader view and starts questioning products that use foreign parts, even when value is genuinely added in Vietnam, it could end up affecting a lot of companies that are playing by the rules.'
Vietnam's government said in a statement late on Wednesday that under the deal, the country had promised 'preferential market access for U.S. goods, including large-engine cars.'
But the statement gave scant detail about the transshipment arrangements in the deal, which Trump announced on his Truth Social platform.
Bloomberg Economics forecast Vietnam could lose a quarter of its exports to the U.S. in the medium term, endangering more than 2% of its gross domestic product (GDP) as a result of the agreement.
Uncertainty over how transshipping will be 'defined or enforced' is likely to have diplomatic repercussions, said Bloomberg Economics expert Rana Sajedi.
'The looming question now is how China will respond,' she said. 'Beijing has made clear that it would respond to deals that came at the expense of Chinese interests.'
And on Thursday, China warned against trade deals that 'hurt third parties.' 'China has always advocated that all parties resolve economic and trade differences through equal dialogue and consultation,' Foreign Ministry spokesperson Mao Ning said.
'At the same time, relevant negotiations and agreements should not target or harm the interests of third parties,' she said.
The U.S. deal with Vietnam comes less than a week before Trump's self-imposed July 9 deadline for steeper tariffs on U.S. trade partners to take effect if agreements are not reached.
Trump's trade adviser Peter Navarro has called Vietnam a 'colony of China,' saying that one-third of Vietnamese products are, in fact, relabeled Chinese goods.
Beijing's commerce ministry said on Thursday it had 'always firmly opposed' U.S. tariffs.
'China's position is consistent,' He Yongqian, spokesperson for China's Ministry of Commerce, told a briefing.
'We are happy to see all parties resolve economic and trade differences with the United States through equal consultations, but we firmly oppose any party reaching a deal at the expense of China's interests,' she said.