Vietnam’s proactive engagement with the United States administration under President Donald Trump to secure a tariff agreement has, paradoxically, introduced significant uncertainty into its crucial export sector. While an early accord was reached, averting immediate high tariffs, the absence of a comprehensive agreement text and clarity on critical clauses is leaving Vietnamese manufacturers and government officials grappling with complex implications ahead of an approaching deadline.
- Vietnam secured an early 20% tariff agreement with the U.S. before the July 9 deadline, avoiding a potentially higher 46% rate.
- The deal, publicly announced by President Trump, lacks detailed stipulations, causing limbo for key industries ahead of an August 1 “reset” date.
- A vague “transshipment” clause is a major concern, potentially imposing a 40% tariff on goods with Chinese components, a common practice in industries like garments (70% raw materials from China).
- Vietnamese manufacturers are already reporting order drops; for instance, Thanh Cong Garment notes a 15-20% decline in U.S. orders for Q3.
- Hanoi is actively seeking clarity, with Prime Minister Pham Minh Chinh urging U.S. businesses to support comprehensive agreement finalization and advocate for Vietnam’s market economy recognition.
The deal, announced publicly by President Trump, set a blanket 20% tariff on Vietnamese goods, effectively allowing Vietnam to avoid a potentially steeper 46% rate. This quick action was taken before a July 9 deadline, making Vietnam one of only two nations to secure such terms. However, nearly a month later, with an August 1 reset date looming, the lack of detailed stipulations has left key industries in limbo. For instance, Thanh Cong Garment, a significant supplier for global brands like Adidas and Calvin Klein, reports a 15-20% drop in U.S. orders for the third quarter. The company’s chair, Tran Nhu Tung, articulated the prevailing anxiety, questioning whether the 20% tariff applies universally or escalates for products incorporating Chinese materials.
Ambiguity in Transshipment Clauses
A primary point of contention and concern is a vague “transshipment” clause that could impose a 40% tariff on certain goods. The ambiguity lies in the undefined scope of “transshipment,” leading to fears that products legitimately manufactured in Vietnam but using Chinese components—a common practice, especially in the garment industry which sources approximately 70% of its raw materials from China—could be subjected to these higher duties. Rich McClellan, founder of RMAC Advisory, a firm consulting for both companies and the Vietnamese government, highlighted this clause as “the most ambiguous and most potentially risky portion of this agreement.” Economist Michael Wan from MUFG further noted that the clause’s impact hinges on the Trump administration’s interpretation, ranging from targeting blatant fraudulent labeling to imposing thresholds on foreign material content, the latter posing a significant threat to Vietnamese exports.
This situation adds scrutiny to Vietnam’s burgeoning trade relationship with the U.S. Nearly one-third of all Vietnamese exports are directed to the U.S., and its trade surplus with America reached $123 billion in 2024, positioning it as the third largest behind China and Mexico. Washington views this success with increased suspicion, partly due to the fact that Chinese investors funded almost one in three new manufacturing projects in Vietnam last year, raising questions about potential circumvention of U.S. tariffs on Chinese goods.
Hanoi’s Diplomatic Push for Clarity
In response to the mounting uncertainty, Prime Minister Pham Minh Chinh recently met with the U.S.-ASEAN Business Council in Hanoi. Representing major American corporations such as Apple, Amazon, and Boeing, the council was urged by Pham to support Vietnam’s efforts to finalize a comprehensive agreement, negotiate lower tariff rates, and prevent any actions that could damage bilateral trade relations. The Prime Minister also requested U.S. companies to advocate for Vietnam’s recognition as a market economy, a designation that would reduce its vulnerability to trade defense measures.
Despite these trade headwinds, foreign direct investment (FDI) in Vietnam has shown resilience, rising almost 30% to $21.5 billion in the first half of the year. However, U.S. retailers are sounding alarms. Steve Greenspon, founder of Honey-Can-Do, cautioned that a 20% tariff would inevitably lead to higher prices and inflation for consumers, subsequently reducing demand and negatively impacting American businesses and employment. As Hanoi continues to push for clarity and definitive terms, the ultimate economic fallout of this early trade agreement remains to be seen, leaving manufacturers and policymakers in a state of anticipatory caution.
Lucas turns raw market data into actionable strategies, spotting trends in a heartbeat. With 9 years managing portfolios, he treats market volatility like a surfer riding big waves—balance and timing are everything. On weekends, Lucas hosts “Bull & Bear Banter” podcasts, showing that finance discussions can be as entertaining as they are informative.