The Latest on Southeast Asia: Tariff Deal with Vietnam

President Donald Trump on July 2 declared that Vietnam and the United States had reached a deal to avoid the 46 percent “reciprocal tariffs” on Vietnamese imports into the United States announced in early April. This makes Vietnam just the second country after the United Kingdom to reach agreement with the Trump administration during the 90-day freeze on reciprocal tariffs, which is due to expire on July 9. The United States and China also agreed to a separate 90-day freeze on many of the tariffs they placed on each other while negotiations continue. Details are scarce, but Vietnamese state media said the two sides reached a “Joint Vietnam-US Statement regarding a Framework for Fair and Reciprocal Trade Agreements” following a phone call between Trump and General Secretary To Lam. Like the U.S.-UK framework agreement reached in May, this appears to be more the outline for future negotiations than a detailed trade agreement.    

According to Trump’s announcement, the United States will set tariffs on most  imports from Vietnam at 20 percent in exchange for Vietnam removing all tariffs on U.S. goods. But goods from Vietnam suspected of being transshipped (presumably from China) will face a 40 percent tariff. How transshipment will be determined is likely a topic for future negotiations. It is also unclear whether this deal will address the impact on Vietnam of tariffs the United States has or is expected to impose on specific industries, including aluminum, steel, automotives and auto parts, pharmaceuticals, semiconductors, and critical minerals. To Lam also requested that the United States officially recognize Vietnam as a market economy – which the Department of Commerce denied last August – and remove restrictions on the export of high-tech products, though neither side confirmed whether those concessions are part of the deal.

Vietnam is the sixth-largest trading partner and enjoys the third-largest trade surplus with the United States. The bilateral imbalance has grown rapidly since the first Trump administration, in part because of companies relocating manufacturing operations from China. That made Vietnam a key target of the second Trump administration’s trade policy. And given Vietnam’s heavy reliance on exports to the United States, Hanoi has proven the most eager among Southeast Asian capitals to strike a deal. Just two days after the announcement of reciprocal tariffs in April, To Lam phoned Trump to open negotiations. The two spoke on the phone again on July 2 to discuss the ongoing negotiations, detailing the steps to be taken by both sides. Hanoi also fast-tracked approval of a Trump Organization resort and golf course in May and welcomed Eric Trump to Ho Chi Minh City to scout locations for a future Trump Tower.

Vietnam is surely unhappy with a 20 percent baseline tariff rate, but that is low enough to keep Vietnamese exports competitive, particularly with time running out for its neighbors and closest competitors to strike deals. Every Southeast Asian country except Singapore is facing reciprocal tariffs above the worldwide baseline of 10 percent: Cambodia at 49 percent,  Laos at 48 percent, Thailand at 36 percent, Indonesia at 32 percent, Malaysia at 24 percent, Brunei at 24 percent, and the Philippines at 17 percent. For most, negotiations are ongoing and the White House has suggested those doing so in “good faith” could receive an additional delay on tariffs. Indonesia and the Philippines have probably been most active in negotations, with Malaysia increasing efforts more recently. Cambodia has also been eager to engage, though perhaps with less success. Thailand is probably in the worst position, having no senior in-person negotiations yet and none likely in the near term as the government teeters on the brink of collapse.

Gregory B. Poling is a senior fellow and director for the Southeast Asia Program and the Asia Maritime Transparency Initiative at CSIS. Japhet Quitzon is an Associate Fellow for the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

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