New US-Vietnam deal risks retaliation from China over Trump tariffs

By Swati Pandey

 

A new trade deal between the US and Vietnam risks provoking retaliatory steps from China as the accord includes a 40 per cent tariff on goods deemed to be transshipped through the Southeast Asian country, according to Bloomberg Economics. 

Under the deal, a 20 per cent tariff will be placed on Vietnamese exports to the US, with a 40 per cent levy on any goods deemed to be transshipped — a measure likely directed at China which has used other nations to skirt US import duties. 

While the US levy on Vietnam is lower than the 46 per cent initially imposed by President Donald Trump in April, it’s double the 10 per cent universal base rate being applied while negotiations are taking place. As a result, risks are still tilted to the downside for Vietnam, Bloomberg’s Rana Sajedi wrote in a research note.  

 

 

“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 and the decision to agree to a higher tariff on goods deemed to be “transshipped” through Vietnam may fall in that category.” 

 

Given China’s position as Vietnam’s largest trading partner and a key source of inputs for domestic production, any retaliatory measures could have an outsized impact on Vietnam’s economy, she added.

 

There are also broader implications for other countries which may view Vietnam’s acceptance of tariffs double the 10 per cent universal rate “as unwelcome and not one to emulate.” 

 

Sajedi estimates that under the agreement, Vietnam could lose 25 per cent of its exports to the US in the medium term, putting more than 2 per cent of its annual economic output at risk.

 

“This deal also does not seem to provide any guide for addressing concerns about sectoral tariffs, which are central to negotiations for many major trading partners, including Japan, South Korea and the EU,” Sajedi added.