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The Diplomat
4 days ago
- Business
- The Diplomat
Vietnam's US Tariff Deal: Strategic Lift or Supply Chain Liability?
Last week, the United States and Vietnam announced that they had reached a landmark tariff agreement: a 20 percent duty will apply to confirmed Vietnamese-origin goods, while transshipments from third countries through Vietnam will face a 40 percent levy. While this is being cautiously welcomed in Hanoi as a diplomatic and economic step forward, the deal marks a significant turning point in Vietnam's delicate act of strategic hedging between the U.S. and China. It expands Vietnam's position within the reconfigured global supply chain landscape, shaped by efforts to reduce overdependence on China. Yet this shift also exposes the country to complex regulatory, political, and institutional risks. This latest tariff agreement must be seen in the broader context of Washington's evolving approach to trade and economic security. The United States has intensified its efforts to reduce reliance on Chinese supply chains, especially in strategic sectors such as electronics, semiconductors, and clean energy. Under the Trump administration's renewed 'America First' doctrine, this has translated into heightened scrutiny of trade imbalances, enforcement of origin rules, and the use of tariffs as a policy tool. Vietnam, which emerged as a key alternative manufacturing hub during the initial China-U.S. trade war, now finds itself formally included in Washington's economic realignment. But unlike traditional trade agreements that emphasize tariff reduction and market access, this deal focuses on enforcement and traceability. Vietnam is expected to ensure that goods exported to the U.S. are genuinely produced in Vietnam, not merely assembled or rerouted products originating from China. This reflects a shift in U.S. trade thinking, from liberalization toward control, with national security and compliance at the center. For Vietnamese exporters, the implications of this are mixed. On one hand, the 20 percent tariff applied to verified Vietnamese-origin goods does not significantly change the playing field for sectors that were already facing elevated U.S. tariffs. For example, certain electronics and machinery items previously fell under Section 301 measures or anti-dumping duties. In those cases, the new rate may offer more predictable trade conditions. However, for other industries, especially those that had benefited from Most Favored Nation rates, generally range from 0-10 percent, the new tariff level introduces real cost pressures. A key example is Vietnam's wooden furniture sector – its leading export category to the U.S. – which previously enjoyed tariffs of 0-8 percent. Now facing a 20 percent levy, even fully compliant producers may see shrinking margins and reduced competitiveness. Similar concerns apply to lower-end electronics components, footwear, garments, and leather goods, which typically fell into lower tariff brackets. These changes will likely impact production planning, investment flows, and supply chain strategies, both for domestic firms and for foreign investors using Vietnam as a manufacturing base. Vietnam became more attractive to foreign investors after the onset of the first China-U.S. trade war in 2018, which prompted firms to reduce their exposure to Chinese tariffs by relocating manufacturing operations to the country. Vietnam's geographic proximity, competitive labor market, improving logistics, and network of free trade agreements all made it an obvious alternative. Nike now produces more than half of its footwear in Vietnam, while Adidas sources nearly 40 percent of its global output there. Foxconn, Apple's key manufacturing partner, has expanded rapidly in Bac Giang province, announcing plans to build a $270 million plant in 2023. Intel operates one of its largest chip assembly and test facilities in Ho Chi Minh City, with a $1.5 billion investment footprint. However, most of these companies continue to source upstream components and raw materials from China. Vietnam serves as the final assembly point, not the origin of value-added manufacturing. This dual-dependency creates new vulnerabilities under the current deal. Goods assembled in Vietnam but with significant Chinese content may be deemed transshipments and subject to 40 percent duties, unless clear origin traceability can be demonstrated. Exactly how this will be determined under the recent agreement remains to be seen. In any event, foreign investors from South Korea, Japan, Singapore, Taiwan, China, and even the U.S. itself now face considerable uncertainties. This new agreement places a much greater onus on the Vietnamese government, which is expected to strengthen customs oversight, implement reliable origin-verification protocols, and improve digital traceability systems to ensure export compliance with U.S. standards. However, Vietnam's ability to meet these demands remains unclear. The General Department of Customs has made strides toward modernization, but gaps remain in transparency, digitalization, and enforcement consistency. To fulfill the obligations of this tariff deal, Vietnam must coordinate across multiple layers of government as well as with private manufacturers and foreign investors operating within its borders. On top of all of this, Vietnam must manage its close economic relationship with China. Although the new U.S. tariff framework is not explicitly anti-China, its enforcement could disproportionately affect goods with Chinese content. If Vietnam's compliance is seen as limiting access for Chinese-linked products, Beijing may respond. It may choose to delay customs clearance of Chinese exports to Vietnam, reduce unofficial cross-border trade, or discourage investment flows as a way of signaling its displeasure. This also helps explain why Vietnam is now pressing for reciprocal concessions: in particular, for Washington to recognize Vietnam as a market economy and ease restrictions on high-tech exports. If Hanoi is expected to implement stricter trade controls that align with U.S. strategic interests, it will expect acknowledgment of its regulatory progress and economic maturity in return. Finally, the new deal revives the tensions from Trump's previous presidency. In 2019, the U.S. Treasury Department designated Vietnam a currency manipulator, citing efforts to suppress the value of the đong. Although the label was lifted under subsequent review, the narrative that Vietnam has benefited unfairly from trade imbalances has endured. Trump has repeatedly accused Vietnam of 'taking advantage' of the U.S., and these concerns may re-emerge as scrutiny over trade surpluses intensifies. If U.S. trade policy becomes more protectionist, even compliant Vietnamese firms may face a more difficult operating environment. The openness and agility that helped Vietnam become an FDI magnet could now expose it to heightened regulatory and geopolitical risks.
Bangkok Post
05-07-2025
- Business
- Bangkok Post
Traders cautious as US tariff deadline nears
RECAP: Asian investors turned cautious on Friday as the July 9 deadline to avert steep US tariffs approached with very few trade deals concluded. President Donald Trump indicated that dozens of trading partners could simply get letters next week informing them of their rates. The SET index moved in a range of 1,080.92 and 1,128.07 points this week, before closing yesterday at 1,119.94, up 3.5% from the previous week, with daily turnover averaging 33.75 billion baht. Institutional investors were net buyers of 3.83 billion baht, followed by brokerage firms at 301.46 million. Retail investors were net sellers of 2.73 billion baht, followed by foreign investors at 1.40 billion. NEWSMAKERS: The US and Vietnam agreed on a trade deal in which tariffs of 20% will apply to Vietnamese-origin goods and 40% on transshipped goods. In return, Vietnam will grant total market access to US goods by applying a zero tariff rate. Economists say Vietnam's trade deal with the US is a wake-up call for Asian governments grappling with the reality that higher tariffs are here to stay. Trump has threatened to impose a 30% or 35% tariff on Japan if a deal between the two countries is not reached before Wednesday's deadline. That would be well above the 24% rate announced on "Liberation Day" on April 2. Trump said an upcoming trade deal between India and the US is going to be of a "different kind" with "much less tariffs". The US House approved Trump's landmark "big beautiful" tax and spending bill, setting the stage for Trump to sign it on the Independence Day holiday, July 4. Trump supports a Senate bill that would impose tariffs as high as 500% on China and India if they import oil from Russia, aimed at pressuring President Vladimir Putin to enter negotiations with Ukraine. Federal Reserve chairman Jerome Powell said interest rates probably would have been lower by now if Trump had not announced tariffs, which forced the Fed to delay easing as tariffs can significantly raise inflation. Trump threatened to cut off billions of dollars in subsidies that Elon Musk's companies receive from the US government, in an escalation of the war of words between the president and the world's richest man, one-time allies who have since fallen out. Multiple news outlets report that the US has lifted export restrictions on chip design software to China, seen as an important sign of easing trade tensions. US non-farm payrolls increased by 147,000 in June, higher than market expectations, while the unemployment rate fell to 4.1%, reflecting a strong labour market that eases concerns about a recession. Markets still expect the Fed to cut rates twice more this year, in September and December. European Central Bank (ECB) policymakers are concerned that the appreciation of the euro could weigh on exports and drag inflation down further, minutes from their June meeting showed. The US manufacturing purchasing managers' index (PMI) expanded for the sixth consecutive month in June, rising to 52.9, the highest since May 2022, supported by increases in new orders and employment. The US consumer confidence index also improved from the previous month to 60.7, higher than market expectations. Japan's tax revenues hit a record ¥75.2 trillion ($524 billion) in the fiscal year ended March 31, surpassing government forecasts by ¥1.8 trillion. India's manufacturing PMI for June rose to 58.4, the highest in 14 months, from 57.6 in May, driven by strong exports. South Korea reported that June exports increased more than expected by 4.3% year-on-year due to strong global demand for semiconductors. Semiconductor exports rose by 11.6% to a record high of $14.97 billion. Microsoft is laying off as many as 9,100 employees, or 4% of its workforce, the Seattle Times reported, with big cuts in its gaming division as it seeks to control costs. ♦Opec+ is expected to accelerate oil production for the fourth straight month in August, adding another 411,000 barrels per day, despite recent price decline after the Israel-Iran ceasefire, as global oil demand is still viewed as robust. Hong Kong is expected to lead the world in IPOs this year despite uncertainty from geopolitical tensions and trade tariffs, PwC said. The Chinese financial hub has rebounded strongly this year, with dozens of Chinese companies piling in to raise overseas capital. PwC predicted nearly 100 companies will raise at least US$25 billion in Hong Kong this year. Tesla shares jumped after the carmaker posted a less drastic decline in vehicle sales than the most pessimistic analysts feared. The company delivered 384,122 vehicles during the last three months, down 13% from a year earlier. Some investors were braced for a 20% plunge or worse. Deputy Finance Minister Julapun Amornvivat cautioned that Thailand's trade negotiations with the US are unlikely to conclude before Tuesday's deadline, as the team led by Finance Minister Pichai Chunhavajira was unable to reach a conclusion with the US Trade Representative in talks this week in Washington. Thailand has a new acting prime minister, Phumtham Wechayachai, and 13 new ministers after a reshuffle that happened to coincide with a Constitutional Court ruling to suspend PM Paetongtarn Shinawatra pending a ruling on her ethics case. Ms Paetongtarn is still in the cabinet, as culture minister, as she prepares her defence against allegations related to her handling of a phone call with former Cambodian premier Hun Sen. The court is expected to take 1-2 months to reach a final decision. The World Bank has reduced its economic growth forecast for Thailand to 1.8% for this year and 1.7% for 2026, citing mounting global and domestic challenges. The projections mark a downgrade from earlier forecasts of 2.9% and 2.7%, respectively. Thailand recorded GDP growth of 2.5% last year. The Investment Analysts Association downgraded its Thai GDP growth forecast for 2025 to 1.87%, from 2.56% in the previous quarter. The SET index is forecast to finish the year at 1,231 points. The Ministry of Tourism and Sports on Friday shut down the online registration system for the much-hyped "We Travel Together" travel subsidy scheme because of repeated problems that led to crashes. Repairs may take a few days. The Tourism Authority of Thailand had been counting on the 1.76-billion-baht programme to generate tourism revenue of 35 billion baht from July 4 to Oct 31. Foreign tourist arrivals from Jan 1 to June 29 fell 4.6% from the same period a year earlier, the tourism ministry said. Of the 16.6 million visitors, Malaysia was the largest source country with 2.29 million, followed by China with 2.25 million. Long-term corporate bond issuance in the first half of 2025 dropped by 19.3% year-on-year, totalling 399 billion baht, the Thai Bond Market Association (ThaiBMA) said. Foreign investors were net buyers of Thai bonds, totalling 32.3 billion baht. The ThaiBMA said most market participants expect the Bank of Thailand to cut its policy interest rate once more in the final quarter of 2025, from 1.75% to 1.50%. Thailand's Manufacturing Production Index in May expanded 1.9% year-on-year to 100.79, with the automotive industry growing 12.9%, reflecting motor show bookings, economic stimulus and lower interest rates. The cabinet has extended registrations for debt relief measures until Sept 30 from the original June 30 deadline. Conditions were also revised to provide broader coverage. COMING UP: On Monday, euro zone finance ministers meet and Japan releases current account data. On Tuesday, Australia and New Zealand announce interest rate decisions. On Wednesday, The US reports crude oil inventories and the Fed releases minutes of its last meeting. On Thursday, the US announces initial jobless claims. On Friday, the UK reports monthly GDP, Germany announces monthly inflation and the International Energy Agency releases its monthly oil market report. Locally, the SET on Monday holds a briefing on market trading ion June. On Wednesday, Finnomena discusses the fund market outlook for the second half of 2025. STOCKS TO WATCH: Asia Plus Securities (ASPS) says heightened volatility in the Thai stock market has caused capital to flow into the bond market as a safe haven. However, if stock market conditions stabilise, there is a strong possibility that funds could flow back into equities. The brokerage notes that with the SET index hovering around 1,100 points, the market yield gap has widened to 6.25% and the dividend yield gap has reached nearly 3%, making equities attractive from a risk premium standpoint. It recommends high-dividend stocks that show signs of recovery including SIRI (11% yield), ITC (9%), M (9%), AP (8.9%), LH (8.8%), KKP (8.4%), TU (7%) and KTC (5%). InnovestX Securities says investors should focus on the fact that the US intends to unilaterally impose tariff rates on dozens of trading partners if they cannot reach deals by the July 9 deadline. Its top stock picks include PTT at a target price of 41 baht, CPALL (68 baht) and CBG (70 baht).
