Vietnam said it is responding to US demands with “goodwill” and has sent a written reply to US trade requests after the Trump administration vowed to keep pressuring the Southeast Asian nation to reduce its role in China supply chains.
At talks in Paris, the two sides agreed on the need to speed up progress ahead of the third round of official negotiations set to take place next week, according to a post on the Vietnam trade ministry’s website.
Vietnam has engaged in weeks of intense diplomacy with the US — the largest export market of the trade-reliant country — as it seeks to avert a threatened 46% tariff, which was later wound back to 10% for 90 days to allow time for talks.
Hanoi’s relationship with northern neighbor China, its largest bilateral trade partner, has increasingly drawn US scrutiny. US commerce secretary Howard Lutnick said Washington’s tough stance will remain as long as Vietnam keeps re-exporting a significant amount of Chinese products to the US.
This is an “unrealistic expectation” for any export-oriented country, including Vietnam, said Tyler Manh Dung Nguyen, chief market strategist at Ho Chi Minh City Securities JSC. “Cutting ties entirely with Chinese suppliers would not only undermine Vietnam’s export capacity to the rest of the world, but is also fundamentally incompatible with the country’s foreign policy,” he added.
The punitively high levy the US is threatening to impose reflects its displeasure with Vietnam’s trade surplus, the third-largest globally behind China and Mexico. Vietnam has repeatedly vowed to purchase more American goods, while offering to remove all tariffs on US imports.
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Vietnam cited progress after the second round of trade talks last month but said that outstanding issues remain. It’s taken steps to address some US concerns: stepping up a crackdown on trade fraud and promising to buy US$2 billion ($2.5 billion) worth of US agricultural products. But the longstanding Trump administration desire to reduce Vietnam’s Chinese imports remains.
“If the US is asking Vietnam to not allow China re-routing goods through Vietnam, then that is possible,” said Trinh Nguyen, senior economist for emerging Asia at Natixis. “If it is to shut China out of Vietnam’s supply chain and economy, then it will be very difficult.”
While the components that Vietnam needs for its top exports, such as phones and textiles, are dependent on China, that doesn’t mean these are being produced by Chinese firms in Vietnam, she said. Many factories producing these parts are owned by South Korean and Taiwanese firms, for example.
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The high tariff threatens to disrupt supply chains for US brands, including Apple Inc. and Nike Inc., which have significant numbers of suppliers in the country. These manufacturers often import materials and parts from China and conduct the final assembly in Vietnam.
The government may not even have the ability to force companies to remove Chinese components from their products. “These are ultimately business decisions made by private enterprises,” Pham Luu Hung, chief economist at SSI Securities, wrote in a June 4 research note.
Vietnam has sought to diversify trade partners and upgraded ties with a number of nations in recent months, as well as welcomed a revolving door of international leaders to sign deals and cooperation agreements, all in a bid to reduce exposure to any single market.
Vietnam, nonetheless, remains dependent on the two economic superpowers.
“Vietnam will need to figure out how to appease the US while stabilizing its relationship with China,” Natixis’s Trinh Nguyen said.
