Details of the deal have not been made public, but Vietnamese exports to the U.S. are said to be subject to a 20 percent tariff, half the higher rate threatened by Trump.
During his first term, President Donald Trump forced American companies to abandon their dependence on China. Even now, he is pushing other countries to get out of China's supply chain.
According to trade analysts, the initial trade agreement between Vietnam and the United States announced on Wednesday is an important step towards achieving that goal.
Although the details of the trade agreement between the two countries have not been made public, it is said that 20 percent customs duty will be imposed on Vietnamese exports to the US. That's less than half the higher rate Trump has threatened. Notably, however, the agreement would impose a 40 percent customs duty on any export classified as transshipment from Vietnam that is not produced in Vietnam.
This provision is specifically aimed at China, which has used Vietnam and neighboring countries to evade US tariffs on its goods. It could become a feature of U.S. trade deals with other Southeast Asian governments as higher tariffs on goods from China to the U.S. begin on Wednesday.
Trump's trade representative is also pressuring Vietnam's export-oriented neighbors, such as Indonesia, to reduce the amount of Chinese materials in their supply chains. They are calling on Thailand to investigate foreign investment to prevent Chinese businesses from coming. The Americans are also pressuring some countries to reduce their use of semiconductors produced in China.
US efforts to commercially encircle China heighten the risks facing Southeast Asian countries. Which is a strategically important region for Beijing and already at the forefront of China's dominance in global trade and manufacturing. "The Trump administration is pushing that if it wants to be a trading partner with the U.S., it needs to strategically disengage from its dependence on China," said Steve Okun, chief executive of geopolitical consulting firm APAC Advisors. "Will those countries agree to that?"
On Thursday, China's Ministry of Commerce said it was "evaluating" the US-Vietnam agreement. It also made it clear that it will firmly oppose any deal that affects "China's interests" and take steps to protect its own interests. China's future strategy will be determined by how the US and Vietnam will define the trade terms they have agreed to so far.
In the trade talks with the US, Vietnam forgot all its terms. Vietnam has been on the downswing in trade talks since Trump threatened to impose a 46 percent import tax on Vietnamese goods. While most of Vietnam's industries, such as footwear, clothing and electronics, are completely dependent on US exports, high tariffs could cripple Vietnamese industries. After Trump threatened to impose higher tariffs on Vietnam as well, traders there were worried about the future of their industry. A 20 percent tax is not good for anyone. But 20 percent cannot be called worse than 46 percent,' said Tran Quang, executive of a fragrance company that exports almost all of its products to the US.
In addition, he also supported the proposed fee on transshipment mentioned in the contract. According to him, it will provide protection to Vietnamese due to unfair competition from Chinese companies that have invested in Vietnam. "There are many small Chinese companies that come to Vietnam just to relabel their products before exporting them to the US," he said.
Trade and investment by Chinese companies has helped fuel economic growth in Vietnam and the region, but Southeast Asia is struggling to overcome the tide of goods coming from China. Chinese content is forcing many local companies out of business.
Chinese exports to the world have surged after heavy subsidies to factories came at a time when China's economy was in jeopardy. But an American attack on China's hegemony will force China to take countermeasures as well. This will bring ripples in the business of South Asia.
