Vietnam has become the second country in the world and the first in Asia to secure a bilateral trade agreement with the US under the new tariff regime introduced by the Trump administration, reducing a previously imposed 46% reciprocal tariff rate to 20%. The agreement makes Vietnam the second country after the UK to formalise a deal and comes as a lifeline for an economy where exports account for 84% of GDP and shipments to the US alone made up 30% of GDP in 2024.
Vietnam’s vulnerability to US trade measures stems not just from domestic exporters, but also from foreign direct investment within its borders. “Vietnam is the most trade exposed country in Asia – exports are 84% of GDP and US shipment made up a staggering 30% of GDP in 2024,” Natixis economists Trinh Nguyen and Kelvin Tong wrote in a July 4 report. “Vietnam has been the most motivated country to ensure better access to US markets.”
Although the 20% rate is still higher than the UK’s 10%, it is significantly lower than the 46% reciprocal tariff rate imposed on Apr 3 and below China’s current tariff exposure. “Vietnam secured 20% tariff level, which is much lower than 46% on reciprocal tariff day but higher than the UK’s 10% level, and lower than China’s tariff level,” say the economists.
The agreement also includes a 40% tariff on transshipment of goods through Vietnam. How transshipment will be defined or enforced remains unclear. “What it shows is that it will push Vietnam to do two things: be more stringent in inspecting rules of origin to avoid higher friction to trade with the US… and move up the value chain to boost localisation and diversify supply chains, especially imports from China.”
Natixis noted that the transshipment clause is intended to discourage rerouting of Chinese goods through Vietnam, a practice that the US administration is seeking to clamp down on. A study by Harvard Business School cited in the report indicates that “at maximum, about 16% of Vietnam exports are due to rerouting at the product level and much lower at a firm level”.
The structure of the deal, while imperfect, gives Vietnam a clearer outlook on trade policy and supports its positioning in global supply chains. “What it gains is certainty in tariff level and that will lead to continued investment inflows for firms diversifying from China supply chains,” say the economists.
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Foreign direct investment into Vietnam has remained strong despite tariff uncertainty. Registered FDI rose 66% y-o-y from January to May 2025 to US$18.4 billion, while disbursed FDI rose 7.9%. “Many companies have reshuffled their supply chains to Vietnam, especially those that want to export to the US, and certainty on relatively lower tariffs compared to China will ensure that Vietnam remains a favoured destination to diversify supply chains,” say Nguyen and Tong,
The deal also reinforces Vietnam’s long-term industrial strategy. The duo say: “Manufacturing remains the most important sector for the Vietnamese government, which means it will do everything to ensure favourable market access and improving both soft and hard infrastructure to remove bottlenecks to industrialisation, especially in sectors such as electricity.”
Still, the deal comes with risks. The way the economists see it, by being a first mover in Asia and second in the world to secure a deal, Vietnam risks setting the benchmark for others. Meaning, it could end up with a higher tariff rate than others. Vietnam currently has the fourth lowest tariff rate in Asia but it is still higher than the Philippines, which has not yet finalised a deal. “Indonesia indicates it may secure a lower rate,” the economists add.
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Another concern is how the 40% transshipment rule will be applied. “The case of the US imposing 400% tariff on Vietnamese solar shows that the costs of allowing rerouting is being shut out of US markets. Meaning, Vietnamese solar companies, as well as Chinese companies rerouting to Vietnam now face the same tariffs,” they say.
Avoiding becoming a transshipment hub is therefore a top priority. “It is in Vietnam’s interests to ensure that it avoids allowing rerouting of goods, which has zero value add for the country but has significant costs. If importing Chinese intermediates for production is not part of this, Vietnam can manage with its bamboo diplomacy.”
Despite these risks, political consensus within Vietnam remains strong, with limited domestic backlash expected. “The third risk is domestic fallout, which is low for Vietnam given stable politics, and consensus that it needs to lower tariff for survival.”
The agreement also signals broader implications for the region. “The deal shows that the US needs trade partners if it wants to shift supply chains out of China, but tariffs are expected, with a 10% minimum threshold; and that means US tariffs are higher, but not as high as reciprocal tariff day.”
Vietnam’s relative success in securing a deal contrasts with the challenges facing others in Asia. “Others such as Thailand where domestic politics are troubled, India where agriculture is a thorny issue, Japan and South Korea where auto tariffs are a challenge will make a deal much more difficult,” say the economists.
Still, more agreements are expected. Nguyen and Tong believe that more emerging market Asia deals are coming, most likely India and Indonesia.
