‘Better than expected’: Chinese firms in Vietnam upbeat over US tariff deal

Many Chinese manufacturers now plan to continue operating in Vietnam, after the US agreed to lower its tariffs on the country’s goods to 20 per cent

Chinese manufacturers in Vietnam breathed a sigh of relief on Wednesday, after Washington and Hanoi agreed a “better than expected” trade deal that will reduce US tariffs to 20 per cent and bring an end to three months of uncertainty.

Most Chinese exporters are likely to continue operating in the Southeast Asian nation in the wake of the agreement, with firms viewing the final tariff rate as manageable, analysts and businesspeople in the country told the Post.

US President Donald Trump announced on Wednesday via a social post that the United States would impose a 20 per cent tariff on imports from Vietnam – plus a 40 per cent duty on goods deemed to be transshipped – under a new trade agreement, calling it “a great deal of cooperation between our two countries”.

The new rate is significantly lower than the 46 per cent so-called “reciprocal” tariff on Vietnamese goods that Trump announced in early April, before subsequently pausing for 90 days.

Hanoi and Washington reportedly held three rounds of negotiations to reach the deal, which also slashes Vietnamese duties on US goods to zero, eventually confirming an agreement just days before the “reciprocal” tariff pause was due to expire on July 9.

The US is still locked in trade negotiations with a slew of countries including Canada, Japan and India, after agreeing an early deal with the United Kingdom. It has also reached agreements with China over export controls and to roll back tariffs for 90 days, though the two sides have yet to confirm a permanent deal.

The latest deal with Hanoi not only has wide-ranging implications for Vietnam, but also for the large number of Chinese manufacturers that have set up production in the country in recent years – often to avoid earlier rounds of US tariffs targeting China.

Peng, a Chinese national who runs a cardboard box printing factory in northern Vietnam, said the tariff outcome was better than he had expected and should allow his business to continue functioning.

I won’t relocate again. I’ll simply split the tariff costs with my American clientsPeng, Chinese factory owner based in Vietnam

He originally moved his factory from Guangdong province in southern China to the Vietnamese city of Haiphong in 2018, when many of his clients also began relocating to the region to avoid US tariffs on Chinese goods introduced by Trump during his first term in office.

After investing 20 million yuan (US$2.8 million) to set up the new facility, Peng said his company finally started generating good returns last year. Orders surged over the past three months as anxious US clients rushed to front-load shipments ahead of the potential 46 per cent tariff roll-out.

“I’ve already made a significant investment to relocate to Vietnam thanks to Trump, and even if he plans to raise tariffs to 46 per cent, I won’t relocate again,” said Peng, who declined to give his full name for privacy reasons. “I’ll simply split the tariff costs with my American clients.”

Liu Jie, a business consultant at Vietnam-based consulting firm Seamakes, said that most Chinese companies already operating in Vietnam had decided to stay after the US announced its reciprocal tariff plan in April.

“Many of the exporters leaving Vietnam are those engaged in simple transshipment of goods, and they are now the primary targets of Vietnamese authorities,” Liu said.

The Vietnamese government has rolled out stricter rules for Chinese manufacturers in line with commitments made to the US, according to Liu. These include requirements that core production must occur in Vietnam and that local value-added content for products must exceed 31 per cent.

“This is good news for local Chinese manufacturers with registered factories, as they have made real contributions to Vietnam’s economy and industry,” Liu added. “A 20 per cent tariff is also the best outcome expected by them.”

Vietnam was one of the early winners of the US-China trade war that erupted during Trump’s first term in office, attracting a wave of Chinese manufacturers in the apparel, electronics and appliances sectors seeking to avoid US tariffs.

That shift helped to accelerate Vietnam’s economic growth and turn the country into an export powerhouse. But it also made the country a target of US pressure, with officials complaining about Vietnam’s large trade surplus with America and accusing the nation of allowing large-scale transshipment of Chinese-made goods.

The latest US-Vietnam deal includes a 40 per cent tariff on goods deemed to be transshipped via Vietnam to the US, though it is unclear at this stage how this provision will be implemented in practice.

Exports from China to Vietnam have grown, but much of it supports Vietnamese manufacturing and is not ‘transshipments’ in the sense of simple tariff evasionMary Lovely, researcher

Trump said Vietnam would also open its market to US exports, describing American SUVs and large-engine vehicles as “a wonderful addition to the various product lines within Vietnam”. All American goods will be subject to zero tariffs on entering Vietnam under the agreement.

Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said the final outcome may disappoint US buyers and was unlikely to place significant pressure on Vietnamese exporters.

“Many US exports are not well suited to the Vietnamese market, given the large gap in gross domestic products (GDP) per capita, and I doubt that the Vietnamese are overly concerned about export surges from the US impacting their domestic factories,” she said.

“This may explain why they accepted US demands for zero tariffs on US exports into their country.”

Lovely added that concerns over transshipment from Vietnam were likely overstated. “Exports from China to Vietnam have grown, but much of it supports Vietnamese manufacturing and is not ‘transshipments’ in the sense of simple tariff evasion,” she said.

The main challenge for Vietnam will be identifying and enforcing transshipment rules, according to Lovely, though enforcement may be more straightforward than it appears because research shows that most re-routing is done by Chinese-owned firms.

Vietnam’s trade surplus with the US rose to US$12.2 billion in May, up nearly 42 per cent year on year, according to Vietnamese government data.

Last year, the US imported US$136.6 billion of goods from Vietnam, accounting for nearly one-third of the Southeast Asian country’s total exports.