No chance of zero tariffs? The premise for breakthroughs in US-Vietnam negotiations: not involving China?
Created on 06.27
From June 9 to 12, the third round of bilateral trade negotiations between Vietnam and the United States was held in Washington. The Vietnamese delegation was led by Minister of Industry and Trade Nguyen Hong Dien, while the U.S. side was jointly represented by Secretary of Commerce Howard Lutnick and Trade Representative Jamison Greer.
According to the report from the Vietnamese Ministry of Industry and Trade, the negotiations focused on three core issues: tariff reduction, origin supervision, and market access. Both parties discussed the response document previously submitted by Vietnam. Although progress has been made in some areas, a final consensus on key issues has not yet been reached, and online consultations are planned to continue in the near future.
Negotiation Focus 1: Tariff Reduction - From 46% down to 20%~28%, in exchange for market space
Vietnam is striving to reduce the U.S. punitive tariffs on its exported goods from a maximum of 46% to around 20%-25%. Currently, both parties have temporarily maintained a 10% tax rate for a 90-day buffer period.
The U.S. signals: If Vietnam makes substantial commitments on origin compliance measures, future tariffs may be reduced to a range of 22%–28%.
Negotiation Focus 2: Origin Audit - Key Crackdown on "Origin Washing" Behavior
The U.S. is focusing on the issue of Chinese goods "bypassing to Vietnam," requiring Vietnam to strengthen origin supervision and crack down on illegal transshipment activities. Data shows that Vietnam imports more than $90 billion worth of goods from China each year, some of which are exported to the U.S. under private labels after simple processing, which has raised alarms in the U.S.
The U.S. requires that exported goods meet the "substantial transformation" standard, including changes in tariff classification or a local value-added rate of over 30%. Vietnam is developing a "high-risk enterprise list," focusing on industries such as photovoltaics, steel, and aluminum products, which have seen a surge in exports in recent years.
Negotiation Focus Three: Market Opening - Vietnam commits to removing barriers to U.S. agricultural products
As a condition for tariff exchange, Vietnam has committed to further opening its market, including the removal of non-tariff barriers on U.S. agricultural products and increasing the procurement of high value-added goods such as Boeing aircraft and liquefied natural gas to balance the trade surplus with the U.S.
Vietnam's domestic supporting actions are ongoing.
To coordinate with the progress of negotiations, Vietnam has adopted a series of policies in response:
- Establish the "National Guiding Committee No. 389 Permanent Office" to strengthen law enforcement against origin fraud;
- Require local governments, ports, airports, and harbors to intensify the crackdown on counterfeit origin export activities;
- Hold a State Council executive meeting to deploy a series of measures to stabilize foreign trade, including origin management;
- Encourage the localization and upgrading of the manufacturing industry, and promote the landing of high-tech industries such as semiconductors and the digital economy.
Vietnam's economy and export structure
Vietnam's GDP growth in 2024 is approximately 6.8%, leading in Southeast Asia. Exports are primarily in electronics, textiles, and footwear, with a rapid increase in exports to the United States, especially under the backdrop of China-U.S. trade frictions, further elevating the status of "Made in Vietnam."
However, as the U.S. strengthens origin supervision and intensifies tariff pressure, Vietnam's role as an "intermediate link" is being challenged, and the pressure for transformation is increasing.
Insights for Chinese-funded Enterprises
Although the negotiations with Vietnam did not explicitly name China, the requirements for "origin washing" and "substantive transformation" clearly impose substantial constraints on China's capacity overflow. The long-term reliance on the OEM model through the "Vietnam channel" is gradually becoming ineffective.
For Chinese-funded enterprises, three points are worth noting:
- The benefits of detour mode are fading.
The United States requires Vietnam to "reduce dependence on industrial imports from China," strengthen supervision of "origin laundering," and emphasize substantial transformation (such as local value-added rate or changing tax numbers); otherwise, tariffs will continue to be maintained or even increased, which means that OEM exports face significant compliance risks;
- Manufacturing going abroad needs to upgrade to "capability going abroad"
Transitioning from OEM to a long-term layout of brand, technology, and capital;
- The path to going overseas requires dual chains to run in parallel.
Domestic efficiency chain + overseas compliance chain, neither can be missing.
The rules game of the US side is still ongoing, and the overseas expansion model of Chinese enterprises has also reached a time for reconstruction.
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