For Thanh Cong Garment, a Vietnamese provider to attire corporations together with Adidas, Calvin Klein and Columbia, a commerce deal to keep away from the worst of US President Donald Trump’s tariffs ought to have been an enormous aid.
Vietnam was certainly one of solely two international locations that Trump mentioned has clinched a deal with the US by a July 9 deadline to keep away from his so-called reciprocal tariffs. This week, lots of its neighbours received letters from the White Home threatening, in some instances, increased levies.
However the firm was left puzzling over the shortage of element within the settlement. Trump introduced a blanket 20 per cent tariff fee, down from an preliminary risk of 46 per cent, however neither Vietnam nor the US has offered additional particulars or launched a remaining model of a commerce settlement.
Hanoi has additionally not confirmed the brand new tariff fee, saying solely that the 2 sides had reached a “truthful and balanced reciprocal commerce settlement framework”, elevating additional uncertainty for corporations.
The US aspect additionally included a clause threatening a 40 per cent fee on goods “transshipped” — or rerouted — via Vietnam, although it didn’t outline transshipment. However the clause has stoked considerations amongst companies that they are going to be penalised for utilizing Chinese language inputs, that are important to provide chains in Vietnam.
Tran Nhu Tung, the corporate’s chair, famous that the 20 per cent base fee was not a lot increased than the 15-17 per cent import tax at present paid by Vietnamese garment makers. However the transshipment clause may show to be an enormous problem.
“For the merchandise that [have] supplies from China however manufactured in Vietnam, what’s the tariff to export to the US? 20 per cent or 30 per cent or 35 per cent?” mentioned Tung. “We have to wait.”
Vietnam, one of many largest suppliers of attire, sneakers, electronics and different merchandise to the US, turned a producing powerhouse lately, attracting the likes of Apple, Nike and Samsung as corporations rushed to relocate manufacturing out of China to keep away from blowback from geopolitical tensions.
A lot of these corporations are clambering to determine the brand new commerce deal will work — and whether or not by shifting rapidly, Vietnam has scored beneficial phrases or hemmed itself in.
“There’s a sigh of aid that a minimum of we all know what the reply is for Vietnam . . . however there may be nonetheless numerous uncertainty within the settlement that exists proper now,” mentioned Wealthy McClellan, founding father of the RMAC Advisory, whose purchasers embody corporations and the Vietnamese authorities.
The transshipment clause is “probably the most ambiguous and most probably dangerous portion of this settlement”, he added.
Vietnam has rather a lot at stake. One of many world’s most commerce dependent international locations, with an exports-to-GDP ratio of almost 90 per cent, a 3rd of its exports go to the US alone, making a better tariff fee a major threat for financial progress.
Its commerce surplus with the US has surged lately to $123bn in 2024, the third-largest behind China and Mexico.
The nation additionally drawn accusations of serving as a conduit for Chinese language corporations looking for to keep away from Washington’s tariffs. A considerable amount of manufacturing funding in Vietnam has come from China, which accounted for nearly one in three new initiatives final 12 months.
Consultants say the Trump administration’s definition of transshipment may discuss with a range of practices from merely repackaging Chinese language items with a counterfeit “made in Vietnam” label or to utilizing Chinese language uncooked supplies in items manufactured in Vietnam.
“The affect could also be extra restricted if these 40 per cent tariffs are enforced solely for probably the most egregious practices of plain diversion of commerce to keep away from US tariffs,” mentioned MUFG analyst Michael Wan.
“In distinction, if there’s a stricter dedication of transshipment outlined as a sure threshold of international worth added, the affect . . . could also be pronounced.”
Given the Trump administration’s interest in isolating China, companies concern a wider definition. This is able to be extraordinarily damaging for Vietnam, the place many companies depend on Chinese language uncooked supplies and elements, and warned that eradicating them can be not possible.
“That’s not practical, that doesn’t keep in mind how world provide chains work,” mentioned one American businessman in Hanoi. “It’s not simply not possible for Vietnam. It’s not possible for everyone.”
One other large unknown is how Vietnam’s tariff fee will compare with those of its neighbours — a distinction that can be important to Vietnam retaining its aggressive benefit as a producing hub. Trump has set a brand new deadline of August 1 for international locations to return to an settlement with the US.
“Whether or not the negotiated tariff is finally a win or loss for Vietnam will largely rely on whether or not different ‘China plus one’ markets safe related offers,” mentioned Marco Förster, Asean director at Dezan Shira & Associates.
Official knowledge for the primary half of the 12 months reveals FDI elevated almost a 3rd to $21.5bn, suggesting that funding had not been scared off by the tariff uncertainty. Vietnam additionally has an edge in sure incentives and cheaper prices for producers.
However Steve Greenspon, founding father of US residence items retailer Honey-Can-Do, warned that even “a 20 per cent tariff will end in increased costs and inflation on items”.
“This can actually result in decreased demand for items, hurting American companies and jobs,” he mentioned. “Corporations will proceed to supply their merchandise in Vietnam, although at a decrease tempo than previous to the tariffs.”
For Tung, orders from US prospects for the third quarter had already dropped between 15 and 20 per cent, after a rush to ship orders earlier than the July 9 deadline. As much as 70 per cent of uncooked supplies for garment manufacturing, from cotton yarn to zippers and elastic, are sourced from China, making it troublesome for the business to keep away from being caught up in transshipment.
“A lot of the garment supplies of Vietnamese garment companies are imported from China,” mentioned Tung. “So it’s troublesome to search out one other supplies provider other than China.”
Knowledge visualisation by Haohsiang Ko in Hong Kong
