Last week, the Trump administration announced a 90-day pause on a 46 percent tariff on Vietnamese goods entering the United States. This was amid reports that Vietnam and the US would begin negotiating a trade deal.
At the same time, however, the US-China trade war reached a new apogee, with a brief tit-for-tat exchange leading to a 145 percent tariff on Chinese goods entering the US and a 125 percent tariff on US goods entering China. By most assessments, if left in place, this would decimate trade between the world’s two biggest economies which are also Vietnam’s two biggest trading partners.
In fact, two-way trade between the US and Vietnam was over US$134.6 billion in 2024, with two-way trade with China topping US$205.2 billion, according to data from Vietnam’s General Department of Customs. Combined, that’s about 43 percent of Vietnam’s total trade for the year.
This puts Vietnam in a precarious situation in and of itself leading into trade negotiations with the US. It’s also worth noting, however, that more than two-thirds of Vietnam’s exports belong to foreign firms which adds another key stakeholder to the mix. That’s not to mention Vietnam’s domestic private sector which could be adversely impacted by any trade concessions made to placate said foreign interests.
With this in mind, this article looks at the interplay between these stakeholders in the context of negotiating a trade deal with the Trump administration and the minefield negotiators will need to navigate.
Tariffs
Firstly, trade between the US and Vietnam is currently governed by the US-Vietnam Bilateral Trade Agreement that came into force in 2001. This agreement is archaic by modern free trade agreement standards with tariffs set at most-favoured-nation (MFN) rates through the World Trade Organisation (WTO). The average of these rates, on the Vietnam side, is currently 9.4 percent.
Notably, Vietnam was very quick to suggest, after the Trump Tariffs were announced, that it was willing to cut its tariffs on US imports to zero if an agreement could be reached. Without a free trade agreement, any tariff reduction would of course apply to all other members of the WTO, significantly opening up the market to foreign imports.
This could be highly disruptive with a number of key industries in Vietnam significantly protected by import tariffs. Vietnam’s sugar industry, for example, has much higher production costs than other parts of the world like Brazil and India but these are offset by a 40 percent import tariff on refined sugar.
For foreign firms with manufacturing operations in the country, however, whether tariffs are cut for everyone or just the United States it doesn’t make all that much of a difference. A US tariff of 46 percent on imports from Vietnam, however, could devastate the bottom line of many of these firms.
That is to say, the interests of domestic enterprises and foreign firms are not necessarily aligned and balancing between them may be tricky. Moreover, it emphasises the need for a free trade agreement with the US as opposed to Vietnam taking unilateral action.
Non-tariff barriers
All of that said, key Trump trade advisor, Peter Navarro, quickly rejected the suggestion that lowering tariffs was necessarily what the Trump administration was looking for.
“Zero tariffs, that means nothing to us because it’s the non-tariff cheating that matters,” he told CNBC’s Squawk Box last week.
And, indeed, the US has a lot of gripes with how Vietnam behaves in matters of international trade. These are outlined in the 2025 National Trade Estimate Report on Foreign Trade Barriers compiled by the United States Trade Representative and range from data handling requirements, to the enforcement of intellectual property protections, to cross-border service regulations, to name just a few.
Of note, many of these grievances were addressed by the Trans-Pacific Partnership (TPP) agreement that was signed in 2016. The US, however, under the first Trump administration withdrew from the agreement in line with a well-articulated dislike of free trade, a dislike that not only has persisted but that seems to have become stronger since Trump’s first term.
This is important because it is difficult to see what an agreement addressing these grievances might be if it is not a free trade agreement that looks a lot like the TPP. It could be, however, that the outcome the US is looking for is not an agreement at all but rather a unilateral dismantling of these non-tariff barriers by Vietnam.
This could be a significant problem in that again, under MFN principles, any preferential treatment afforded the US would need to apply to all other members of the WTO.
That said, it looks a lot like it is only one particular grievance that the Trump administration really wants resolved.
Chinese trans shipment
“They sell us $15 for every $1 we sell them,” Navarro also said in his CNBC interview. “About $5 of that 15 is China trans shipping to Vietnam to evade their tariffs.”
Indeed, this has been a recurring theme for years as FDI and imports from China to Vietnam have picked up alongside exports from Vietnam to the US.
Notably, the TPP also carried Rules of Origin provisions to tackle this kind of behaviour. These provisions were arguably not as strong as they could have been but still would have given the US an avenue of recourse to pressure Vietnam to do something to try and stymie the practice.
That aside, Vietnam has in recent days expressed a willingness to crack down on Chinese goods being shipped through the country.
This would, however, not be the first time with a 2019 resolution issued that was supposed to do just that. Given the current situation, this looks to have had a very limited impact or at least if it has had an impact it has not been well communicated.
In short, Vietnam will likely need to step up enforcement a notch or two.
Of note, the USMCA free trade agreement is generally considered the gold standard on Rules of Origin on account of site inspections being permitted by parties to the agreement and in the event a site inspection is denied so too can parties be denied preferential tariff treatment.
Presumably, in terms of what can be done in 90 days, this is the direction Vietnam and the US will head.
This, however, may come with complications. For one, if Chinese goods can get into Vietnam but can’t get to the US there is a good chance they might be dumped on local markets.
Moreover, with China and the United States currently engaged in a trade war, Vietnam needs to ensure that any policy outcome avoids antagonising China which will likely be watching these negotiations very closely.
The negotiators
Negotiations aside, some thought should also be put toward the key negotiators.
Vietnam’s Ministry of Industry and Trade, which generally manages trade negotiations, for instance, is in the process of being restructured. With 28 units being condensed down to 22 and staff being cut and systems and processes being merged together it may be challenging ensuring the right expertise and skill sets are applied to any negotiations.
Although, it has been reported that a negotiation team has already been put together so this might not be that big of a deal and to be fair, though it’s not all that common, Vietnam’s key decision makers are capable of hustling when they really need to.
On the other side, however, the conditions are markedly more complicated with the Trump administration needing to negotiate trade deals with what could be 150 countries (assuming all countries impacted come to the table) in just 90 days.
Moreover, the Trump administration is unpredictable, with policy and strategy often changing on the fly, a reality that does not bode well for a timely outcome.
That is to say, that under these circumstances, negotiating a substantive, balanced, and fair trade agreement by the July 8 deadline may be challenging. That’s not to say it can’t be done, but whereas it’s good to hope for the best, it is always wise to plan for the worst.