Vietnam’s trade deal with the US averts the most punishing of US President Donald Trump’s “reciprocal” tariffs, but analysts warned that it could provoke a fresh standoff between Washington and Beijing.
The Southeast Asian nation has the third-biggest trade surplus with the US of any country after China and Mexico, and was targeted with one of the highest rates in the US president’s “Liberation Day” tariff blitz on April 2.
The deal announced on Wednesday is the first full pact Trump has sealed with an Asian nation and analysts say it might give a glimpse of the template Washington would use with other countries still scrambling for accords.
Photo: AFP
The 46 percent rate due to take effect next week has been averted, with Vietnam set to face a minimum 20 percent tariff in return for opening its market to US products, including vehicles.
However, a 40 percent tariff is to 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 No. 2 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,” Capital Economics said in a note.
The terms on transshipment “will be seen as a provocation in Beijing, particularly if similar conditions are included in any other deals agreed over coming days,” it said.
Chinese Ministry of Foreign Affairs spokeswoman Mao Ning (毛寧) yesterday said that “negotiations and agreements should not target or harm the interests of third parties.”
A Vietnamese Ministry of Foreign Affairs spokesman told reporters that negotiators were still “in detailed discussion to concretize agreements.”
However, there are scant details about the transshipment arrangements in the deal, which Trump announced on Truth Social.
Bloomberg Economics forecast that Vietnam could lose one-quarter of its exports to the US in the medium term, endangering more than 2 percent of its GDP as a result of the agreement.
“The Vietnamese government will now find itself under pressure to ensure that country-of-origin rules are enforced,” said Jack Sheehan, head of regional tax at Asian legal and tax company DFDL.
Uncertainty over how transshipping would be “defined or enforced” is likely to have diplomatic repercussions, Bloomberg Economics expert Rana Sajedi said.
“The looming question now is how China will respond,” Sajedi said. “Beijing has made clear that it would respond to deals that came at the expense of Chinese interests.”
“The decision to agree to a higher tariff on goods deemed to be ‘transshipped’ through Vietnam may fall in that category,” she said.
“Any retaliatory steps could have an outsized impact on Vietnam’s economy,” she added.
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