US President Donald Trump last week told reporters that he had signed about 12 letters to US trading partners, which were set to be sent out yesterday, levying unilateral tariff rates of up to 70 percent from Aug. 1. However, Trump did not say which countries the letters would be sent to, nor did he discuss the specific tariff rates, reports said.
The news of the tariff letters came as Washington and Hanoi reached a trade deal earlier last week to cut tariffs on Vietnamese exports to the US to 20 percent from 46 percent, making it the first Asian country — and the second globally after the UK — to secure such a deal with the US, before a 90-day reprieve from Trump’s “reciprocal” tariffs expires tomorrow.
While the US-Vietnam trade deal serves as a template for governments seeking to reach deals with Washington, the most interesting part of the agreement might be the imposition of a 40 percent tariff on goods transshipped via Vietnam. Under that arrangement, components from China and other countries undergoing minimal final assembly in Vietnam are subject to additional tariffs, although there are scant details about the scheme in the deal.
Vietnam emerged as a major trading partner during Trump’s first term, when Washington started trade spats with Beijing. Last year, Vietnam exported US$136.6 billion of goods to the US, a significant increase from US$38 billion in 2015. Much of that growth is attributed to Chinese firms routing shipments through Vietnamese factories to circumvent tariffs — a practice that appears directly targeted by the US-Vietnam trade deal’s transshipment levies.
Compared with its massive exports to the US, Vietnam’s imports from the US amounted to only US$13.1 billion last year, which shows that the Southeast Asian nation is highly dependent on trade with the US and its US$123 billion trade surplus with the US makes it the third-largest source of surplus after China and Mexico for the US. In other words, Vietnam’s trade relationship with the US is nearly unilateral, and Hanoi can do nothing but accept Washington’s terms — such as eliminating tariffs on US goods and fully opening its domestic market — or face a high tariff rate, which would be detrimental to its exports.
Taiwan also has a significant trade surplus with the US, reaching US$74 billion last year. Unlike Vietnam, Taiwan’s trade relationship with the US can be characterized as mutually dependent, as the nation imported US$46.46 billion in goods — 3.55 times that of Vietnam — from the US last year, an indication that Taiwan is at least a relatively important market for US companies.
In addition, Taiwan’s major exports to the US, such as information and communications technology goods, and electronic components — including semiconductors — play a key role in helping Washington maintain its advantages in cutting-edge technology, as well as its defense industry. Meanwhile, the US in May overtook China as Taiwan’s top export destination, as the former accounted for 30 percent of total exports, surpassing the latter’s 27.2 percent share, government data showed, a sign of a significant shift in Taiwan’s export structure.
The Executive Yuan said Taiwan and the US held their first videoconference on April 11, launched the first round of face-to-face meetings on May 1 and held the second round of face-to-face meetings on June 25. Both sides had communicated intensively through video and document exchanges, it said. It remains unclear whether those crunch trade talks could lead to a meaningful reduction in US tariffs on Taiwanese goods from the 32 percent rate set in April. Hopefully Taipei would get better terms than Vietnam, assuming Taiwan pledges to lower tariffs on US goods and increase US procurement and investment.
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