By Tom Fowdy
The Trump administration has announced a new "trade deal," with Vietnam.
Instead of the US going ahead with its scheduled 46% tariffs on goods from Hanoi, it will now impose a 20% levy on all imports from the country, while Vietnam itself goes zero free on all imports from the United States.
Not only that, but the US will now apply a 40% tariff on all goods from Vietnam which are rerouted from China, a significant measure given a large quantity of Vietnamese exports are in fact repackaged goods in supply chains integrated with its northern neighbour, but we have been long aware that the Trump administration has sought to squash this, a key motivation behind its heavy handed tariff assault on Hanoi in the first place.
Let's be frank about this: This deal is absolutely disastrous for Vietnam and threatens to crush its export model entirely from an early stage, without the benefactor of China's massive capacity, development and leverage. Vietnam is an emerging economy who has entered the value chain as a low-end manufacturer, its cheap and abundant labour force being its primary asset. As China has become more expensive for the cheapest goods and moved into creating more specialised components, international companies have diversified aspects of assembly to the South East Asian country to bring costs down.
For example, most Apple I-phone suppliers are now based in China, making the physical components, but aspects of assembly have been diversified out to Vietnam. This is not always an "exodus" from China, as admittedly many Chinese companies themselves have even outsourced production to Vietnam to escape tariffs. While in theory one would assume that US strategists would see value in an economically stronger Vietnam as part of a broader regional vision to contain Beijing, and thus have attempted to cultivate stronger relationships with Hanoi, the reality is that Trump's protectionist "America First" worldview interprets trade as a zero-sum game, therefore, the fact that China sees Vietnam as a "loophole" is unacceptable.
For Trump, there are only "winners" and "losers" in trade and therefore a Vietnam who prospers relatively through the US and China is a non-starter, it is all for America or nothing. In which case, the White House has come to the conclusion that it is better to just crush Vietnam on trade altogether, than to allow it to be a mutual benefactor. Therefore, the US has forced Hanoi, a developing country, to accede to one-sided trade terms. Vietnam is forced to open itself completely to the American market, but that privilege is not reciprocated and Vietnamese companies face a 20% tariff on all exports, coupled with a 40% one if it is of China origin.
While Vietnam has ironically sought to cultivate a close strategic partnership with the United States with the China factor in mind, this "trade deal" can only be described as punishing for its own economic development and strategy, for it now must look elsewhere and not rely on America. Moreover, it is also an absurdly self-defeating move against US firms seeking to keep costs down, but this of course will make them think twice about moving into Vietnam. When Trump says "America First" you must give credit to the fact that he actually means it. This isn't an "anyone but China" approach, which many US strategists tolerated and Biden ultimately did, this is a "I want manufacturing back in the United States."
I had originally assumed that due to its strategic importance, the US would actually back down on serious tariffs against Vietnam and give them a favourable arrangement, with the China factor in mind. Instead, it appears that the President is deadly serious on keeping punishing tariffs on every country and effectively demanding one sided capitulation in exchange for limited, if any relief. Even the United Kingdom after all, a country top of the list, who poses no trade threat to America whatsoever, wasn't truly let off the hook.
Thus Vietnam, a strategically critical country for US interests, has effectively been forced into subjugation. Ironically, this will not make them less reliant on China, but will only further illustrate the long-term importance of the Chinese market as a safe-haven. Hanoi now has some hard decisions to make in reconfiguring their economic development strategic. The era of it as a refuge for firms leaving China in the hope of accessing America is over. Trump is not only building a wall on the border, he's building one around all US ports of entry.
The views do not necessarily reflect those of DotDotNews.
Read more articles by Tom Fowdy:
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