Vietnam, known for being a major supplier to global apparel companies such as Adidas, Calvin Klein, and Columbia, breathed a sigh of relief when it was announced that the country had secured a trade deal with the US to avoid the worst of President Donald Trump’s tariffs. However, the lack of detail in the agreement has left many companies, including Thanh Cong Garment, puzzled and uncertain about the future.
While Trump initially threatened a 46 percent tariff rate, the final agreement settled on a 20 percent tariff rate. Despite this seemingly positive development, neither Vietnam nor the US has provided further details or released a final version of the trade agreement, causing confusion and apprehension among businesses. The inclusion of a clause threatening a 40 percent tariff on goods “transshipped” through Vietnam has also raised concerns about the potential impact on companies that rely on Chinese inputs in their supply chains.
Tran Nhu Tung, the chair of Thanh Cong Garment, highlighted the ambiguity surrounding the agreement, particularly regarding the tariff rate for products with materials sourced from China but manufactured in Vietnam. This uncertainty has left businesses in limbo, unsure of how to proceed in light of the new trade deal.
Vietnam’s status as a manufacturing powerhouse, attracting investments from tech giants like Apple, Nike, and Samsung, has made it a key player in global supply chains. The country’s heavy reliance on exports, particularly to the US, makes the new tariff rate a significant concern for economic growth. With a trade surplus of $123 billion in 2024, Vietnam is at risk of facing economic challenges if the tariff situation is not clarified.
The transshipment clause in the agreement has sparked fears among businesses about potential repercussions for using Chinese raw materials in goods manufactured in Vietnam. The lack of a clear definition of transshipment has added to the uncertainty, with experts warning of the potential risks associated with a broad interpretation of the clause.
As Vietnam navigates the complexities of the new trade deal, businesses are anxiously waiting for more clarity on how the agreement will impact their operations. The upcoming deadline of August 1 for countries to finalize agreements with the US adds to the urgency for companies to understand the implications of the new tariff rates.
Despite the challenges posed by the trade deal, Vietnam remains an attractive destination for foreign direct investment, with FDI increasing by nearly a third in the first half of the year. The country’s competitive advantages, such as incentives for producers and lower production costs, continue to attract investors, despite the tariff uncertainties.
As businesses in Vietnam brace for the impact of the new trade deal, the future remains uncertain. The potential consequences of the transshipment clause and the broader implications of the agreement on Vietnam’s competitive advantage in the global market are key concerns for companies operating in the country. Only time will tell how the trade deal will shape Vietnam’s economic landscape in the coming months.
Companies Adjusting to Tariffs by Slowing Production in Vietnam
Despite the impact of tariffs on their operations, companies are finding ways to navigate the shifting landscape of international trade. One such country that has been affected is Vietnam, where companies are now producing their products at a slower pace than before.
For Tung, a garment manufacturer in Vietnam, the effects of the tariffs have been significant. Orders from US customers have dropped by 15 to 20 per cent for the third quarter, following a rush to ship orders before the July 9 deadline. The reliance on Chinese suppliers for up to 70 per cent of raw materials, such as cotton yarn, zippers, and elastic, has made it challenging for the industry to avoid disruptions in their supply chain.
“Most of the garment materials of Vietnamese garment firms are imported from China,” explained Tung. “Finding alternative materials suppliers outside of China has proven to be difficult.”
Despite these challenges, companies are adapting to the new reality. While production may be slower than before, businesses are finding ways to maintain their operations and continue serving their customers. The resilience and flexibility of companies in Vietnam are evident as they navigate through these uncertain times.
As companies adjust to the impact of tariffs, the industry in Vietnam is evolving. By finding new suppliers and exploring alternative solutions, businesses are finding ways to mitigate the effects of the tariffs and continue operating in a sustainable manner.
It is clear that companies in Vietnam are facing challenges due to the tariffs, but they are determined to find solutions and continue producing their products. The ability to adapt and innovate in the face of adversity is a testament to the strength of the business community in Vietnam.
Data visualization by Haohsiang Ko in Hong Kong
