U.S. President Donald Trump has announced a trade deal with Hanoi. Vietnamese stocks rose slightly to end at the highest level in three years following the announcement.
Highlights:
- The U.S. will apply 20% duty on Vietnamese imports — well below the 46% rate the U.S. had imposed in April
- U.S. imports to Vietnam will be subject to a Zero Tariff
- Transhipment Tariff: The U.S. will impose a 40% duty on any products that originally came from another country, but were sent to Vietnam for final shipment to the U.S.
Transhipment tariffs seem largely aimed at China, which produces many of the inputs for companies operating in Vietnam. “The draft Vietnam deal confirms that countries with sustained high trade surpluses with the U.S., and those acting as transhipment hubs for Chinese goods, may face higher baseline tariffs and additional duties on rerouted products. It also confirms a broader U.S. effort to ring-fence and curb perceived Chinese overproduction and excess capacity,” says UBS.
Vietnam is one of the few countries that has struck a trade deal with the U.S. before the 9th July deadline. Over the last decade, Vietnam, a strategically located nation of 101 million people with a large coastline and stable government, has emerged as a rapid-growth, export-led economy.
More Deals Ahead?
This deal provides some cues to negotiators from the countries involved in negotiating a trade deal with the world’s largest economy. Mark Williams of Capital Economics told CNBC: “Other countries will feel they should be able to lock in a lower tariff rate than the 20% that President Trump says Vietnam has agreed to,” noting that “Vietnam had an unusually weak negotiating hand” due to its strong dependency on trade with the U.S. Other countries may also have to agree on 40% rate on trans-shipped goods.
Several more trade agreements may be expected soon, including one with India, where negotiations on agriculture – a politically sensitive sector – is proving difficult. According to experts, “India will find it hard to allow US market access without domestic backlash.”
Implications for the EU?
EU’s trade negotiations with Trump, who has been openly critical of the Bloc, have been challenging. Trump had called for high tariffs (upto 50%) on Europe; EU has threatened countermeasures.
Natixis CIB’s Nguyen said, “Vietnam shows that it is very difficult for Europe to get what it wants — which is tariff-free. Some duties are likely to be imposed, she said, and while the EU could retaliate by applying equal tariffs on the U.S., Nguyen expects the EU to agree to a 10% tariff and “try to take wins on the sectoral side.”
Is the US-Vietnam a harbinger of more trade agreements to follow? What should we expect about the coming deals with the U.S.? Is a U.S.-China deal on the horizon? Comment below.