U.S.–Vietnam Trade Deal Lowers Tariffs but Escalates Tensions with China Over Transshipment Crackdown

Hadisur Rahman, JadeTimes Staff

H. Rahman is a Jadetimes news reporter covering Business

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Image Source: Linh Pham

The United States and Vietnam have reached a landmark trade agreement that reduces planned tariff hikes on Vietnamese goods, offering partial relief to Vietnam’s export-driven economy. However, the deal includes strict penalties on transshipped goods a move widely interpreted as targeting China and one that could deepen economic tensions in the region.

Announced on Wednesday, the deal lowers U.S. tariffs on Vietnamese exports from the previously proposed 46% “reciprocal” rate to 20%, while goods deemed to be transshipped those rerouted through Vietnam to mask Chinese origin will face a 40% tariff. In return, Vietnam has agreed to eliminate all tariffs on U.S. imports, a move President Donald Trump hailed as “opening their market to the United States.”

“Vietnam will remove all tariffs on American products,” Trump wrote on Truth Social. “This will boost our exports particularly in cars, agriculture, and energy.”

Vietnam, the sixth-largest exporter to the U.S. with nearly $137 billion in goods sent last year, has worked urgently to avoid steep tariff hikes since Trump first floated them in April. The country’s $124 billion trade surplus with the U.S. the third-largest after China and Mexico put it squarely in the administration’s crosshairs.

In a bid to maintain favorable trade relations, Vietnamese officials committed to increased purchases of American goods, including aircraft, liquefied natural gas, and agricultural products. Vietnam also greenlit a $1.5 billion Trump Organization resort development near Hanoi an investment that many analysts see as both economic and political.

However, the deal could come at a cost. Analysts from Bloomberg Economics estimate Vietnam could lose up to a quarter of its U.S. exports in the medium term, potentially shaving more than 2% off its GDP.

At the heart of the agreement lies the U.S.’s renewed focus on Chinese transshipments goods that are rerouted through third countries like Vietnam to evade U.S. tariffs. Trump administration officials, including trade adviser Peter Navarro, have frequently accused China of flooding the U.S. market via Southeast Asia.

“Vietnam sells us $15 for every $1 we sell them, and about $5 of that is just Chinese products relabeled as Vietnamese,” Navarro said in a recent interview.

Trade experts and intelligence reports noted a spike in Chinese exports to Vietnam earlier this year, suggesting that transshipment practices may have intensified ahead of tariff changes. The new 40% tariff tier is intended to curb that trend, but critics warn that enforcement could prove difficult.

“The criteria for defining transshipment remain vague,” said Su Yue, Principal China Economist at the Economist Intelligence Unit. “What is clear, however, is that Vietnam’s role as a backdoor for Chinese goods is under intense scrutiny.”

Beijing quickly reacted to the deal, warning that any trade pact that harms Chinese interests would be met with retaliation.

“We firmly oppose any party striking a deal at the expense of China’s interests,” said Chinese Commerce Ministry spokesperson He Yongqian. “China will strike back to protect its legitimate rights.”

Chinese officials are particularly wary of the precedent this sets. The U.S. is currently negotiating similar terms with other Asian economies, including India, and recently finalized a trade deal with the U.K. that includes restrictions on Chinese inputs in supply chains.

Vishnu Varathan, head of macro research for Asia at Mizuho Bank, said the U.S. strategy appears focused on “disincentivizing China’s integration in regional supply chains by rewarding alternative hubs like Vietnam provided they comply.”

The U.S.–Vietnam deal positions Hanoi as a central player in the evolving U.S.-China trade rivalry. While zero tariffs from the U.S. offer a short-term boost, Vietnam may find itself walking a tightrope between two superpowers.

“Vietnam and other Asian nations are vulnerable to a two-sided geoeconomic squeeze,” Varathan noted. “They rely heavily on both the U.S. and China.”

Ultimately, the deal reflects Washington’s broader trade agenda one that seeks not just to reduce trade deficits but to strategically shift global supply chains away from China. Whether that ambition proves feasible remains to be seen.

“Rewiring supply chains that have been decades in the making is a monumental task,” said Deborah Elms of the Hinrich Foundation. “The U.S. is asking a lot in exchange for benefits that remain uncertain.”