China accounted for around 40% (Opens in new window) of Vietnam’s US$395 billion worth of imports in the year to August. Chinese capital and intermediate goods which are used by Vietnamese factories, account for a significant portion (Opens in new window) of this trade.
As one Lowy Institute analysis (Opens in new window) found more than 70% of Vietnam’s exports reflect non-China sources – “including value produced in Vietnam itself and other countries along the supply chain besides China.”
Specious notions of Vietnam serving as a mere pit stop for the repackaging of Chinese goods also ignores one of the major thrusts of the country’s new growth (Opens in new window) strategy, which is to build on successes in sectors like furniture by fostering deeper local supply chains.
Regardless of the veracity or otherwise of US claims, Vietnamese officials are undoubtedly feeling the heat.
In July, a US customs team visited Vietnam for spot inspections (Opens in new window) on Chinese-owned factories. In the last week of August, Vietnam’s Deputy Prime Minister Nguyen Van Thang visited Washington to try to revivify negotiations on a bilateral trade deal.
Months before the Supreme Court ruled that President Trump’s sweeping tariffs exceeded his authority, Vietnam and the US signed a framework agreement on “reciprocal, fair and balanced trade (Opens in new window)”.
However, efforts to finalise a deal have since run into disagreements (Opens in new window) over transshipment and rules of origin requirements.
Trade deals that the US has negotiated with Malaysia, Cambodia, and Indonesia might provide further clarity on other reasons for the delay.
The US–Indonesia agreement, for example, commits (Opens in new window) Jakarta to cooperating with the US on economic security issues like export controls and sanctions. Washington also retains the right to reinstate higher tariffs (Opens in new window) if Indonesia enters into a trade agreement with a country that “jeopardizes essential US interests”.
These types of clauses run into highly sensitive areas, including Vietnam’s totemic adherence (Opens in new window) to formal non-alignment.
That Malaysia, Cambodia, and Indonesia – all countries that have arguably hewn closer to Beijing in recent years – have signed these agreements suggests an element of flexibility in the framing of these more contentious clauses.
Still, for complex reasons of geography, recent history (Opens in new window), and party ties (Opens in new window), Hanoi has been very wary of transgressing Beijing’s red lines – even while deepening security ties with the US and its allies (Opens in new window), and quietly but forcefully (Opens in new window) asserting maritime claims in the South China Sea.
The following months will be a fascinating test of the adroitness of Vietnamese diplomacy, and the flexibility of Washington and Beijing.
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