Vietnam Faces 20% Tariff Uncertainty Amid U.S. Trade Deal

Vietnam's efforts to meet the July 9 trade deadline set by U.S. President Donald Trump have left officials and manufacturers in a state of uncertainty. The country was one of only two to secure a last-minute agreement, avoiding an initial 46% tariff threat and securing a new blanket rate of 20%. However, the lack of a full agreement text and detailed explanations has left businesses without clear answers just weeks ahead of an August 1 reset.

Thanh Cong Garment, a major Vietnamese supplier for companies like Adidas, Columbia, and Calvin Klein, had anticipated relief from the tariffs. Instead, the company finds itself in limbo, unsure whether the 20% tariff will apply to all goods or increase for products made with Chinese materials. The issue is particularly pressing for Vietnam's garment industry, which relies on China for about 70% of its raw materials, including zippers, cotton yarn, and elastic.

A clause in the Trump deal threatens to apply a 40% tariff on “transshipped” goods, but the definition of transshipment remains unclear. This ambiguity has raised fears among manufacturers that goods containing Chinese components, even if legally assembled in Vietnam, could face heavier tariffs. The Vietnamese government and the U.S. have yet to provide clarification, leaving manufacturers in a state of uncertainty.

Economists and advisors have expressed concerns about the potential impact of the 40% clause. The extent of the damage will depend on how the Trump administration defines transshipment. If the definition targets blatant cases of fake labeling, the impact may be limited. However, if it is based on foreign material thresholds, Vietnamese exports could face significant challenges.

Vietnam's manufacturing sector has been heavily reliant on serving U.S. demand, with nearly one-third of all Vietnamese exports going to the U.S. The region's 2024 trade surplus with America hit $123 billion, making it the third-largest behind China and Mexico. This success has drawn suspicion in Washington, especially given the significant Chinese investment in new manufacturing projects in Vietnam.

In response to the uncertainty, Prime Minister Pham Minh Chinh met with the U.S.-Asean Business Council in Hanoi to push for clearer terms. The council represents major companies like Apple, Amazon, and Boeing. Pham asked the council to support Vietnam’s efforts to finalize a full agreement, lower the tariff rate, and prevent actions that could damage trade relations. He also urged U.S. companies to push the White House to recognize Vietnam as a market economy, which would help reduce pressure from trade defense tools.

Despite the uncertainty, foreign direct investment in Vietnam rose almost 30% to $21.5 billion in the first half of the year. However, U.S. retailers have already begun to express concerns. Steve Greenspon, founder of Honey-Can-Do, warned that a 20% tariff could lead to higher prices and inflation on goods, resulting in reduced demand and harming American businesses and jobs. Thanh Cong Garment has already seen a drop of 15–20% in U.S. orders for the third quarter due to a shipping rush before the July deadline and the wait for clarification.

Vietnam's early move to secure the agreement may have helped it avoid the worst threats from Washington, but the lack of a full text, product list, and guarantee of better terms than its neighbors leaves the final outcome uncertain. As the August 1 deadline approaches, both sides are scrambling for clarity and a definitive agreement to mitigate the potential impact on trade relations and the manufacturing sector.