On 2 July, a trade deal between the US and Vietnam was announced. Under the agreement, US goods will enter Vietnam duty-free, while the US will charge a 20% tariff on imports from Vietnam, instead of the 46% tariff announced in April. In addition, a new “transshipment” agreement was announced, which will charge a 40% tariff rate on goods from other countries that pass through Vietnam on the way to the US market. The new trade deal marks a significant milestone for Vietnam and will have an impact on production networks across Asia.
Trade deal will ease supply chain pressures on textiles and electronics
Vietnam has emerged as one of the US’s leading trade partners. In 2024, Vietnam’s exports to the US reached USD94.6 billion, an increase of 77% from 2019.
Vietnam has been one of the major beneficiaries of global supply chain restructuring and US efforts to reduce its reliance on China. Vietnam managed to attract new investment in its manufacturing sector and became one of the key manufacturing hubs in Asia. For US consumers, Vietnam’s entry into the top trade partners brought in a broad range of more affordable goods, from footwear to electronics. However, this has also widened the US’s trade deficit with Vietnam, which reached USD65 billion (in manufactured goods only) in 2024, and was among the reasons driving changes in the US trade policy.
Vietnam’s key exports to the US market include textiles, hi-tech goods and machinery. The 20% tariff rate will increase operating costs for companies in these sectors, however, at the same time it reduces many of the supply chain pressures. Manufacturers in Vietnam will now have more clarity over future trade rules and have also managed to avoid the worst-case scenario, as a 46% tariff rate would make their goods uncompetitive in the US market.
Higher trade tariff will hurt Vietnam’s economic growth, but there are potential upsides too
The 20% tariff rate is a far cry from the 46% rate announced previously; however, it will still hurt short-term economic growth in Vietnam. The US accounts for almost 30% of Vietnam’s exports, thus the lower trade tariff may not be enough to avoid a slowdown in economic growth.
Trade and economic uncertainty also hurts business confidence. The risk of abrupt policy changes may prevent manufacturers from making new investments, as they decide to wait and see how stable the new rules are. Ultimately, manufacturers in Vietnam will need to wait for more details on the trade deal, which are expected to be announced in the coming weeks.
Access to duty-free US goods may, however, provide some positive effects for Vietnam’s economy in the long term. For example, manufacturing companies could import machinery from the US at lower prices, helping to boost productivity levels in the long term. It will also be important to monitor if Vietnam opens up its financial market to the US and international capital. Liberalised rules may help to attract new investment to the country and provide better access to capital for local companies.
US-Vietnam trade deal will be used as a benchmark by other countries
The US-Vietnam trade deal ensures that Vietnam maintains its export competitiveness, and will be used as a benchmark by other countries when negotiating trade deals with the US.
The 20% tariff imposed by the US on Vietnam’s imports will increase prices; however, it will not erode Vietnam’s competitiveness
Source: Euromonitor International
The 20% tariff still gives Vietnam a significant edge against China, and is in line with trade tariffs proposed for other countries, such as India, Indonesia and Mexico. For example, with a 20% tariff rate, Vietnam’s mobile phone’s exports to the US would still be more competitive in comparison to China, India or Thailand.
It still remains to be seen how new tariff rate will impact the long-term competitiveness of Vietnam. Other Asian countries’ ability to negotiate with the US will largely determine the future of the manufacturing sector in the ASEAN region; however, it is most likely other nations will now take a 20% tariff rate as a benchmark when negotiating with the US.
Transshipment rules will require more diversification on Vietnam’s side
The additional transshipment rules are the largest caveat in the US-Vietnam trade deal, and create significant uncertainty. A key provision in the deal is that goods passing through Vietnam on their way to the US market will be subject to a more punitive 40% trade tariff. Although not specifically mentioning China, this provision mostly targets Chinese exporters that aim to circumvent the higher tariffs they face.
Vietnam remains heavily reliant on component imports from China. For example, one third of electronic components, textiles and machinery consumed in Vietnam come from China. This creates more uncertainty for Vietnam’s exporters, as it is not clear when the 40% tariff would be applied and how this affects input components.
If Vietnam’s trade agreement serves a framework for other negotiations, the transshipment provision is also likely to be applied for other countries. This may cause broader supply chain revisions across Asia, as countries would need to find alternative suppliers to China.
Read our strategy briefing Navigating Market Volatility: Future Proofing Global Supply Chains for more insights on the supply chain changes.
More insights on the US trade policy are available in the Tariffs and Trade dashboard.