With today’s announcement, Vietnam has earned its most consequential trade deal with the White House. This announcement comes only days before Washington is poised to reimpose the very reciprocal tariffs that this agreement seeks to avoid on multiple countries—including Vietnam. The agreement lowers the anti-dumping tariff on Vietnamese exports to 20%. That’s a deep reduction from the 46% rate that President Donald Trump set earlier this year.
Commerce’s new 20% tariff will affect a wide range of imports from Vietnam. Thanks to the CPTPP, U.S. exports to Vietnam will now enter tariff-free. Vietnam has further agreed to apply a 40% tariff on products imported from other nations. These products will thus be shipped to Vietnam before their eventual final shipment back to the U.S. This practice, called transshipping, has become a favorite dodge of China to get around trade barriers.
This trade agreement also paves the way for additional agreements in the very near future. Both countries are hungry to build up their economic relationship. Citi economists and EM strategist Matt Lin have gone on record warning that this deal may put other emerging market economies out to dry. According to analysts at Citi, EM Asia has greater cause for concern than hope for positive developments. They fear this deal could be a harbinger of more and worse to come.
Second, Vietnam has been ahead of the game when it comes to negotiations. Lavanya Venkateswaran, whose organization Human Rights Initiative worked with the Vietnamese authorities to raise the possibility of negotiation with the U.S. prior to the reciprocal announcements in April, drives this point home. Such a resolve to prioritize open dialogue has set Vietnam apart in a remarkable way among all other emerging markets.
The impacts of this trade agreement go further than just Vietnam. Thailand and Malaysia would have the highest exposure to these potential tariffs, particularly with respect to transshipped products. Citi’s experts call out Thailand and Malaysia as among most exposed, even more so than other emerging markets in Asia, other than Vietnam. Their third concern is that the market did not expect there to be a distinct, more severe tariff imposed on transshipped goods.
In a broader context, Sebastian Raedler remarked on the potential trajectory of tariffs resulting from the Vietnam deal: “What we learned from the Vietnam deal is, if anything, the tariffs are going to go up from here, not down.” This expression of frustration mirrors increasing concern from many in the analytical community that emerging market economies find themselves exposed to rapidly shifting trade patterns.
Manufacturing workers at garment factories such as Thai Son S.P. Co. in Ho Chi Minh City are working nonstop to manufacture apparel for international buyers. The effects of these tariffs will surely be felt throughout Vietnam’s economy. The factory has brought more than 2000 jobs to the impoverished district, becoming a key player in the country’s burgeoning export-driven economy.