Vietnam's trade windfall is a warning: The transshipment risk remains — Phar Kim Beng and Lutfy Hamzah
This risk is not theoretical. It is fast becoming the central lens through which Vietnam's trade relations with the US are being assessed. In an environment where President Donald Trump's administration has reintroduced the blunt instrument of tariffs to achieve both political and economic aims, Vietnam's trade performance — no matter how impressive — has become a potential liability.
JULY 14 — Vietnam's booming trade surplus with the United States, recently reported to have reached a record high in the first half of this year, appears at first glance to be a cause for national celebration. The scale of the surplus paints a picture of a country reaping the benefits of economic resilience and shrewd positioning in the global supply chain. But beneath this glittering headline lies a dangerous vulnerability: Vietnam's growing exposure to being labelled a transshipment hub for Chinese goods.
Much of Vietnam's manufacturing capacity has surged in recent years due to the strategic relocation of production from China, driven by firms hoping to avoid the fallout of US-China decoupling. But with many of these manufacturers continuing to rely heavily on Chinese inputs — whether semiconductors, electronics components, or raw textiles — Washington is beginning to suspect that Vietnam's exports are merely rebranded Chinese goods making a stopover before heading to US ports.
US Secretary of State Marco Rubio meets with Vietnam's Foreign Minister Bui Thanh Son during the 58th Asean Foreign Ministers' meeting and related meetings at the Convention Centre in Kuala Lumpur on July 11, 2025. — Reuters pic
The Trump administration has now formalised this suspicion into policy. Following tense negotiations, Vietnam managed to avoid the full force of a punitive tariff hike. But the agreement is fragile. While most Vietnamese exports will be taxed at a reduced rate, a separate, sharply higher tariff awaits any product deemed to be insufficiently transformed from its Chinese origin. The question now revolves around how the US defines 'substantial transformation' and how aggressively it enforces this threshold.
Vietnam's supply chain remains deeply entangled with China. The challenge is not simply about tariffs but about verification. The US demands hard proof that goods exported from Vietnam are genuinely the product of Vietnamese labour, materials, and innovation — not just lightly assembled or relabelled Chinese components. This demand places immense pressure on Vietnamese exporters, many of whom lack the robust documentation and transparency systems needed to meet the expected compliance standards.
Hanoi, in turn, finds itself in a precarious diplomatic position. On the one hand, it must satisfy American demands for transparency, inspection, and enforcement. On the other, it cannot afford to antagonise China, its largest trading partner and essential source of manufacturing inputs. This delicate balancing act is made more perilous by Trump's unpredictable and transactional foreign policy. His administration's rhetoric casts South-east Asian economies not as partners, but as intermediaries enabling Chinese evasion. Vietnam now risks being the poster child of such accusations.
Even as Vietnamese officials work to tighten origin certification and increase domestic value-added production, the broader danger persists. Trump's tariff logic is not rooted in economic precision but political calculation. Tariffs are deployed not only to correct trade imbalances but to generate state revenue, rally political support, and project strength. Trump's team has already indicated its intent to use tariff penalties to generate significant sums for the federal treasury this year. Vietnam's status as a top trading partner makes it an attractive target.
To navigate this volatile environment, Vietnam must move decisively. It must reform its rules-of-origin systems to become more transparent, digitised, and verifiable. This means not only overhauling customs procedures but ensuring that every export can be traced back to a clearly documented and Vietnamese-based supply chain. Without such a system, even legitimate exporters may find their goods penalised under ambiguous classifications.
Moreover, the country must begin to diversify its input sources. This will not be easy. China's scale and price competitiveness are difficult to match. But a reliance on Chinese materials, in the eyes of US policymakers, now equates to strategic vulnerability. Vietnam must develop alternative supply arrangements, particularly with partners in Japan, South Korea, the European Union, and even India. This diversification is not just about economic resilience but geopolitical survival.
Diplomatically, Vietnam must also intensify its multilateral engagement. Bilateral negotiations with the US are insufficient. Hanoi should work with Asean, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and other regional blocs to push back against arbitrary and unilateral trade restrictions. By framing the conversation within a multilateral rules-based system, Vietnam can gain leverage and legitimacy.
The broader lesson is sobering. Vietnam's economic success has been built on its integration into global supply chains. But in an era where geopolitical rivalry has corrupted the logic of free trade, that very integration can become a liability. Trump's tariffs, while ostensibly targeted at China, are being implemented in ways that harm America's allies and partners. The goal is less about fair trade and more about dominance and extraction.
South-east Asia is watching closely. Vietnam may be the current target, but the logic extends across the region. Malaysia, Thailand, and Indonesia — all of whom play key roles in the regional manufacturing ecosystem — may soon face similar accusations. The United States, under Trump's leadership, is reshaping global commerce into a series of loyalty tests: comply with our tariffs, rewrite your laws, reconfigure your supply chains—or be punished.
In this climate, Vietnam's record-breaking trade surplus is no guarantee of security. In fact, it may be the very reason why more scrutiny is coming. The challenge for Hanoi is not simply to weather this storm, but to reposition itself for a new era where trade success is judged less by volume and more by provenance.
In a world where every shipping manifest is now a political document, and every export can become a diplomatic flashpoint, Vietnam must become more than a manufacturing hub. It must become a rules-enforcer, a supply chain innovator, and a standard-bearer of economic credibility. Otherwise, its hard-earned surplus may prove ephemeral outshined by the enduring burden of suspicion.
* Phar Kim Beng is Professor of Asean Studies and Director of the Institute of Internationalization and Asean Studies (IINTAS), International Islamic University Malaysia.
** Luthfy Hamzah is a research fellow at IINTAS
*** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail
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