Vietnam says that it is prepared to crack down on the fraudulent transshipment of Chinese goods via its territory, Reuters news agency reported today, as the two nations begin negotiations on a reciprocal trade agreement.
During his “Liberation Day” announcement on April 2, U.S. President Donald Trump hit Vietnam with an unexpectedly harsh 46 percent “reciprocal” tariff, one of the highest rates in the world. Threatened with a possible existential threat to its export-led economy – exports to the U.S. account for 23 percent of Vietnam’s GDP – Vietnam wasted no time in seeking dialogue with Washington.
While the Trump administration has since announced a 90-day freeze on the implementation of the tariffs, and the two countries have now opened discussions on a reciprocal trade agreement after Vietnamese Deputy Prime Minister Ho Duc Phoc met with U.S. Trade Representative Jamieson Greer earlier this week. According to the Reuters report, Vietnam “is hoping to get the duties reduced to a range of 22 percent to 28 percent, if not lower.”
In addition to lowering its own tariffs on American goods, which the Communist Party of Vietnam chief offered to Trump in a phone call last week, the Reuters report suggests that Vietnam will offer to combat the illicit transshipment of Chinese goods to the U.S. via Vietnam.
In announcing the start of trade talks with the U.S., Vietnam’s government said on its official portal yesterday it would crack down on “trade fraud,” without offering any specifics, Reuters reported.
The news agency also reported that Vietnam’s Government Office, a body that coordinates between its various ministries, held an “emergency meeting” with government trade experts on April 3, hours after Trump’s tariff announcement. “At the meeting, trade ministry and customs officials were told to tighten controls and were given two weeks to devise a plan to clamp down on illicit transshipment,” the report stated, citing a person who was present at the meeting. It added that officials would be given a deadline in late April, in order to avoid provoking China, whose leader, Xi Jinping, is set to visit Hanoi on April 14-15.
Economically, Vietnam was one the great winners of Trump’s first term in office. As multinational firms set up factories in Vietnam to reduce their reliance on China as a manufacturing base, the country during 2017-2023 increased its export share to the U.S. in all categories of products. Accordingly, its trade surplus with the U.S. ballooned, reaching $123.5 billion last year, up from just $38.3 billion in 2017.
The very successes that have made Vietnam a winner of the first Trump administration have now made it a target of the second. One of the narratives that has gained purchase in U.S. policymaking circles is the notion that Vietnam’s rising exports to the U.S. are made up of Chinese goods that have been rerouted through Vietnam to avoid the Trump 1.0 tariffs.
Speaking on Fox News last week, Trump’s hawkish trade adviser Peter Navarro accused Vietnam of acting as a “transshipment” point for Chinese goods, describing it as “essentially a colony of communist China.” Navarro has suggested that as much as one-third of Vietnamese exports to the U.S. were actually disguised Chinese goods.
Certainly, China has played an important role in the boom in Vietnamese exports to the U.S. The growth of Vietnamese imports from China has closely tracked the growth of Vietnamese exports to the U.S., and Vietnam’s lopsided trade surplus with the U.S. is matched by a lopsided trade deficit with China. Given Vietnam’s entwinement in China-centered supply chains, and its industries’ reliance on Chinese production inputs, this is only to be expected.
At the same time, few would deny that genuine tariff evasion is going on. The fact that Vietnam’s Government Office has ordered a crackdown suggests official awareness of the problem. Reuters paraphrased one source who said that “in some instances, ships carrying Chinese-made goods dwelled in Vietnamese ports just long enough to obtain documents certifying that the products were made in Vietnam before leaving.”
In a recent article for The Interpreter, Roland Rajah and Ahmed Albayrak dug into the data compiled by the Asian Development Bank and concluded that the share of “indirect Chinese content” in Vietnam’s exports to the U.S. has indeed “risen substantially,” making up 28 percent of this amount in 2022, up from 9 percent in 2018.
Due to the lack of more granular data, this figure does not appear to distinguish between pure tariff evasion – the slapping of a “Made in Vietnam” label on Chinese-made goods – and the fact that many Vietnamese-made goods, particularly electronics, contain large numbers of Chinese-made components. This raises a question: How much value must be added to a product before it is deemed to be legitimately “Vietnamese”?
Other sources estimate that the level of illicit transshipment is lower. In an article for Nikkei Asia in January, economist Trinh Nguyen cited a Harvard study that found the flow of identical products passing from China to the U.S. via Vietnam only accounted for a maximum of 16 percent of the total in any given quarter. Meanwhile, measuring trade flows within the same company, only 1.8 percent of goods “were flagged as firm-level rerouting.” The BBC cited another trade study that put the figure for rerouted goods at 7 percent.
The bigger issue, as the Rajah and Albayrak argued, is that the focus on Vietnam as an economic “backdoor” into the U.S. market overlooks the ways in which Vietnam has positioned itself as a vital link in global supply chains.
“China has clearly played a big role in Vietnam’s booming exports to the United States,” they wrote. “But China is not the main story. Vietnam itself, and other supply chain partners, are playing the more important role. Moreover, with the right policies, Vietnam can over time leverage this and increasing investment inflows to move up the value chain, gradually reducing its reliance on foreign inputs, including from China.”
Given the vindictive mood of the Trump administration, and the almost defiantly slapdash way in which its “reciprocal” tariffs were calculated, it is unclear if these distinctions mean very much. As such, it makes sense for Vietnam to publicly address U.S. concerns about illicit transshipment – and to take actions to tackle genuine tariff evasion. It is also likely that Vietnamese officials will seek to impress upon their American counterparts that if they wish for Vietnam to reduce its economic reliance on China, choking off the country’s exports to the U.S. is unlikely to help.
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