Could the U.S. Impose New Tariffs on Vietnam? Analysts Weigh In

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The United States’ efforts to curb imports from China by imposing higher tariffs have led to a surge in imports from Vietnam. This shift has dramatically widened trade imbalances, with Vietnam now posting a substantial trade surplus with the U.S., amounting to nearly $105 billion last year. This figure is 2.5 times higher than in 2018 when the Trump administration first implemented heavy tariffs on Chinese goods. Vietnam now holds the fourth-largest trade surplus with the U.S., following China, Mexico, and the European Union.

Symbiotic Trade Relationship
This complex relationship is underscored by data from trade, customs, and investment reports reviewed by Reuters, including information from the United Nations, the U.S., Vietnam, and China. Preliminary estimates from the World Bank and analyses by several economists and supply chain experts further confirm this trend. These reports highlight that Vietnam’s export boom to the U.S. has been fueled by imports from China, with nearly perfect correlation between the value of imports from China and the value of exports to the U.S.

U.S. Concerns Over Tariff Evasion
The surge in imports from China into Vietnam, coinciding with increased Vietnamese exports to the U.S., suggests that Chinese firms might be using Vietnam to circumvent U.S. tariffs. Darren Tay, lead economist at BMI Research, notes that this could prompt the U.S. to consider imposing tariffs on Vietnam after upcoming elections.

Trade Imbalance and Economic Status
The growing trade imbalance comes at a time when Vietnam is seeking market economy status in Washington, especially after President Joe Biden’s efforts to strengthen diplomatic ties with the former adversary. U.S. imports of Vietnamese goods surpassed $114 billion last year, more than double the amount in 2018. This surge in trade has made Vietnam an attractive destination for manufacturers and traders aiming to mitigate risks associated with China-U.S. tensions.

Vietnam’s Dependency on Chinese Inputs
Despite its booming exports, Vietnam remains heavily dependent on Chinese inputs. Data from the Asian Development Bank shows that imported components accounted for about 80% of the value of Vietnam’s electronic exports to the U.S. in 2022. Overall, one-third of Vietnam’s imports come from China, predominantly electronics and components. The Organisation for Economic Co-operation and Development (OECD) reports that 90% of intermediate goods imported by Vietnam’s electronics and textile industries were subsequently used in exports.

Recent Trade Data
Recent trade data reflect this symbiotic relationship. In the first quarter of this year, U.S. imports from Vietnam totaled $29 billion, while Vietnam’s imports from China reached $30.5 billion. This pattern of corresponding trade flows has been consistent over recent quarters and years.

Potential Policy Changes Post-Election
While the White House has remained quiet on Vietnam’s large trade surplus amid ongoing high inflation, analysts suggest that this could change after the November elections. Nguyen Ba Hung, principal economist at ADB’s Vietnam mission, indicates that post-election, U.S. policy towards Vietnam might shift, potentially increasing U.S. import costs.

U.S. Scrutiny and Human Rights Concerns
Vietnam has also drawn U.S. scrutiny due to its reliance on imports from Xinjiang, a region in China linked to human rights violations against Uyghurs. Xinjiang is a major source of cotton and polysilicon used in solar panels, both crucial for Vietnam’s export industries. The U.S. Department of Commerce has been investigating claims that some products labeled “Made in Vietnam” might not have added value in the country, leading to potential regulatory actions.

As the U.S. continues to grapple with the economic and political implications of its trade policies, the evolving dynamics with Vietnam underscore the complexities of global trade and the unintended consequences of tariff strategies. The upcoming U.S. elections could further influence these relationships and policies, shaping the future of international trade.

As reported by The Business Standard in their recent article