Donald Trump has reached a trade deal with Vietnam

A 20% tariff will be placed on the Southeast Asian country’s exports to the US

President Donald Trump said he had reached a trade deal with Vietnam following weeks of intense diplomacy between the nations and ahead of a deadline next week that would have seen higher tariffs imposed on the country’s imports.

A 20% tariff will be placed on Vietnamese exports to the US, with a 40% levy on any goods deemed to be transshipped through the country, Trump said in a social-media post on Wednesday. Trump said that Vietnam had agreed to drop all levies on US imports.

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“In other words, they will “OPEN THEIR MARKET TO THE UNITED STATES,” meaning that, we will be able to sell our product into Vietnam at ZERO Tariff,” Trump wrote. The president said he had secured the deal after discussions with Communist Party chief To Lam.

Read: Tariffs: Trump punishing poor countries that export more to the US than they import

Vietnam’s Ministry of Foreign Affairs said in a statement that Trump pledged to continue cooperating “in resolving issues affecting bilateral trade relations” during the leaders’ call Wednesday and that To Lam proposed that the US recognise Vietnam as a “market economy and remove export restrictions on certain high-tech products.”

A particular challenge

The deal with Vietnam would be just the third announced following agreements with the UK and China, as trading partners race to cut agreements with the US ahead of a 9 July deadline. Trump had imposed a 46% duty on Vietnam as part of his initial rollout of so-called reciprocal tariffs in early April that were levied on dozens of countries, but were then pared back to 10% to allow time for negotiations.

Vietnam posed a particular challenge for the Trump administration, as some of the president’s top advisers view the nation as a strategic partner in efforts to counter China in Asia. At the same time, its exports have become staples for American consumers.

The Southeast Asian nation has seen its sales to US markets surge in recent years, partly because manufacturers shifted production there from China. It’s a major supplier of textiles and sportswear, hosting factories for companies such as Nike Inc., Gap Inc. and Lululemon Athletica Inc.

Vietnam is a relatively poor country – with per-capita incomes of around $4 500, roughly one-twentieth of the US, according to the International Monetary Fund. Image: Bloomberg

Vietnam was the sixth-biggest supplier of US imports last year, sending goods worth almost $137 billion, according to Census Bureau data. Its trade surplus with the US was the third-largest globally on a country basis behind only China and Mexico. Shipments in May jumped 35% as firms sought to get goods onto vessels as quickly as possible ahead of the deadline.

The S&P 500 rose after Trump’s post, with shares in furniture stocks and apparel makers recording gains.

On Holding, Nike and Lululemon all jumped to hit session highs.

Some US officials wanted to calibrate tariffs for Vietnam and others in Southeast Asia to ensure they’re sufficiently lower than what’s imposed on China, to encourage production to leave that country.

‘Essentially a colony of communist China’

The higher 40% rate announced Wednesday would be imposed on goods deemed to be “transshipping” – where components from China and possibly other nations are routed through Vietnam or subject to only minimal final assembly before being exported to the US.

That’s been a major concern for Trump’s top trade advisors, including Peter Navarro, who described Vietnam as “essentially a colony of communist China” during an April interview with Fox News.

Full details of what goods would be subject to that higher rate were not immediately available.

US exports to Vietnam were worth just $15 billion last year. Trump touted the prospect of a boost in auto sales as a result of the deal.

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“It is my opinion that the SUV or, as it is sometimes referred to, Large Engine Vehicle, which does so well in the United States, will be a wonderful addition to the various product lines within Vietnam,” he wrote on Truth Social.

Read:
Trump tariff deadline spurs Asia export surge, wider trade gaps
Trump tariffs are hurting US and global economy, OECD warns
China accuses US of violating trade deal, vows firm response

Boosting US auto exports to Vietnam will be an ambitious goal, since even the cheaper and more compact American-made SUVs may prove expensive by comparison with competitors from other countries. Also, Vietnam is a relatively poor country – with per-capita incomes of around $4 500, roughly one-twentieth of the US, according to the International Monetary Fund.

That limits the size of the auto market in a region where motorcycles remain far more widespread.

Although Trump shared the broad contours of the agreement, the White House has not yet released a term sheet or published any kind of proclamation codifying the arrangement. And some of the details could still be in development. The US and UK first announced their own trade deal in early May, but it wasn’t until mid-June that Trump signed an executive order implementing the accord. And even then, key details have been set aside to be addressed later.

US focuses on talks with major economies

While Trump and his team initially envisioned holding concurrent negotiations with dozens of trading partners, the president and his advisors have suggested in recent weeks that they will just focus on talks with major economies and unilaterally issue levies on smaller countries or those that don’t reach agreements.

Read: Trump’s threat of more tariffs makes US trade partners wary of signing deals

The deal with Vietnam was struck after weeks of discussions during which the US pressured the country to get tougher on trade fraud, ensure stricter enforcement against the transshipment of Chinese products, and also pushed for the removal of non-tariff barriers.

Vietnam offered to remove all tariffs and repeatedly promised to purchase more American goods. Senior Vietnamese officials flew to the US to rally support and sign deals, including for $3 billion of agricultural goods. The trade minister also wooed executives from Nike, Gap and others to encourage them to get behind negotiation efforts.

A $1.5 billion luxury resort complex

Officials in the country also touted the Trump Organisation’s plans to develop a $1.5 billion luxury resort complex, a project that will feature five-star hotels, golf courses and residential estates spanning more than 990 hectares.

The president’s son, Eric Trump, attended a groundbreaking event for the project in May, where he was joined by Vietnamese Prime Minister Pham Minh Chinh.

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