The United States and Vietnam are reportedly nearing a trade framework that would impose tiered tariffs on Vietnamese exports based on the percentage of foreign content, according to Bloomberg. Exports to the U.S. with higher levels of foreign components could face the highest tariff rate in the range—around 20% or more, sources said anonymously due to the confidential nature of the talks. Products with lower foreign content would be subject to slightly reduced rates, while those fully originating from Vietnam could face the lowest rate—possibly the current blanket rate of 10%, they added.
Details are still being negotiated and could change. Vietnam has been engaged in intense diplomacy with the U.S., its largest export market, during which Washington pressed Hanoi to crack down on trade fraud and prevent re-routing and repackaging of Chinese goods through Vietnam to avoid higher tariffs.
Vietnamese Prime Minister Pham Minh Chinh recently expressed confidence in achieving “positive results” from negotiations with the U.S. ahead of the July 9 deadline for a proposed 46% mutual tariff rate. He also emphasized the need to balance relations with both the U.S. and China, Vietnam’s two most important trade partners.
Even a moderate tariff could pose major challenges for Vietnamese exporters, including stricter rules of origin investigations and trade remedy requirements, according to Can Van Luc, a member of Vietnam’s National Advisory Council on Financial and Monetary Policy. “If tariffs are set at 10%-15%, then around $25 billion in additional taxes would have to be paid, though it may have minimal impact,” Luc noted.
Vietnam heavily relies on China for raw materials essential to sustaining its manufacturing-based growth. China accounted for about 38% of Vietnam’s total imports last year, customs data shows. In the first five months of this year alone, imports from China reached $69.4 billion, making it the top source for items like computer parts, electrical components, machinery, and textiles.
Meanwhile, Vietnam has offered to eliminate all tariffs and repeatedly pledged to buy more American goods. Senior Vietnamese officials have traveled to the U.S. to build support and sign multibillion-dollar deals. The trade minister is courting executives from companies such as Nike Inc. and Gap Inc., for whom Vietnam serves as a critical production hub for everything from t-shirts to basketball shoes.
A decade-long industrial shift from China to Vietnam, driven by rising trade tensions, has contributed to the kind of massive trade surplus that made Vietnam a prime target for tariffs. Last year, Vietnam recorded the third-largest trade surplus with the U.S. globally, behind only China and Mexico.
In a sign of how much is at stake, Communist Party chief To Lam is preparing to visit the U.S. in the coming weeks with a delegation of Vietnamese officials and business leaders, as the country seeks to finalize more agreements to purchase additional American products.