Vietnam rushed to meet the trade deadline of July 9 set by U.S. President Donald Trump, hoping to escape a series of harsh retaliatory tariffs. But this early move has now left officials in Hanoi and major manufacturers facing more confusion than clarity.
Vietnam is one of only two countries to reach a last-minute agreement before the deadline, avoiding the initial threat of a 46% tax. Trump has publicly announced that the new general tax rate is 20%. However, no comprehensive agreement has been announced, and both sides have not clearly explained the detailed terms, leaving businesses without answers just weeks before the tax was set to be reinstated on August 1.
Thanh Cong Garment, a major supplier from Vietnam to companies like Adidas, Columbia, and Calvin Klein, had hoped to receive support. However, the current situation remains deadlocked. The company's chairman, Mr. Tran Nhu Tung, stated that it is uncertain whether the 20% tax will apply to all goods or increase for products using Chinese materials.
"For products with materials from China but produced in Vietnam, what is the export tax rate to the U.S.? 20%, 30%, or 35%?" Mr. Tung asked. "We need to wait." This issue is not hypothetical. Vietnam's garment industry relies on China for about 70% of its raw materials, including zippers, cotton yarn, and elastic.
Unclear Transshipment Clause Causes Confusion in Factories
A clause in the deal with Trump threatens a 40% tax on 'transshipped' goods. However, there is no definition of 'transshipped.' The Vietnamese government has not provided a clear explanation, and the U.S. has not announced any details. This raises concerns among manufacturers that goods containing Chinese components – even if legally assembled in Vietnam – will face heavier taxes.
Rich McClellan, founder of RMAC Advisory, which consults for both companies and the Vietnamese government, said: "We can breathe a sigh of relief because at least we know the answer for Vietnam... but there is still quite a bit of uncertainty in the current agreement." He called the transshipment clause the "most ambiguous and potentially risky part of this agreement."
Economist Michael Wan from MUFG stated that the impact of the 40% clause depends on how the Trump administration defines it. If aimed at blatant cases like fake 'Made in Vietnam' labeling, the damage could be limited. But if based on the threshold of imported materials, Vietnam's exports could be severely affected.
Vietnam's manufacturing sector is built on the demand from the United States. Nearly one-third of Vietnam's total export turnover is to the United States, and Vietnam's trade surplus with the U.S. in 2024 reached $123 billion, ranking third after China and Mexico.
Currently, that success is being questioned by Washington, especially as one of three new production projects in Vietnam last year was funded by Chinese investors.
Hanoi Makes Efforts to Clarify Before the August Deadline
Prime Minister Pham Minh Chinh met with the US-ASEAN Business Council in Hanoi on Friday to push for clearer terms. This group represents companies like Apple, Amazon, and Boeing. Prime Minister Pham Minh Chinh urged the council to support Vietnam's efforts to finalize a comprehensive agreement, reduce tax rates, and prevent actions that could harm trade relations.
Trump's public announcement has surprised Vietnamese leaders. Mr. Pham stated that the two countries had agreed on a framework, but warned that there are still no detailed tax rates for specific products. He also called on American companies to urge the White House to recognize Vietnam as a market economy, which would help alleviate pressure from trade defense tools.
So far, investors have not backed down. Foreign Direct Investment (FDI) in Vietnam has increased by nearly 30% to $21.5 billion in the first half of the year. However, American retailers have begun to sound the alarm. Steve Greenspon, founder of Honey-Can-Do, stated:
"The 20% tax will lead to higher prices for goods and inflation. This will certainly reduce demand for goods, harming businesses and American jobs."
Thanh Cong Garment Company has seen orders in the U.S. drop by 15–20% in Q3 due to the rush to ship before the July deadline and waiting for clarification.
Vietnam's initial move may have helped them avoid the worst threats from Washington – for now. However, due to the lack of comprehensive documentation, no product list, and no guarantees of better terms compared to neighboring countries, the final outcome remains unclear.