On July 2 local time, US President Trump announced on social media that the United States has reached a trade agreement with Vietnam. He posted that all goods exported from Vietnam to the United States would face at least a 20% tariff and that Vietnam would "fully open its market" to the United States. Previously, Vietnam was subject to a so-called "reciprocal tariff" rate as high as 46% by the United States, which was adjusted to 10% within a 90-day buffer period. Meanwhile, this news quickly triggered market turmoil. The share price of Nike (NKE.N) rose by approximately 4% On that day, and peer brands such as Under Armour, Levi Strauss, and On Holding also recorded gains of 1-3%. What is the true purpose behind this series of actions?
The United States has reached a trade agreement with Vietnam
On July 2 local time, US President Trump announced on social media that the United States has reached a trade agreement with Vietnam.
On that day, Bloomberg reported that before the July 9 tariff deferral period is about to expire, US officials are currently in in-depth negotiations with major trading partners in Asia and Europe to push for a new agreement. Bloomberg believes that the first agreement has emerged. US President Trump announced the "tiered tariff agreement" reached with Vietnam on the same day. In his post, he stated that goods exported from Vietnam to the United States would be subject to a 20% tariff, while any goods regarded as "transshipped through Vietnam" would be subject to a 40% tariff. It is reported that this move will crack down on products that contain components from China or other countries, are transshipped through Vietnam, or are simply assembled and then exported to the United States. This practice follows the relevant provisions in the existing trade agreements between the United States and Mexico and Canada.
Previously, a spokesperson for China's Ministry of Commerce has clearly stated that China firmly opposes any party reaching a deal at the expense of China's interests in exchange for so-called tariff reduction. If such a situation occurs, China will never accept it and will resolutely take countermeasures to safeguard its legitimate rights and interests. It is worth noting that Trump also said that no tariffs would be imposed on goods exported from the United States to Vietnam.
Why does the United States keep a close eye on Vietnam?
In recent years, Vietnam has become an important hub for global manufacturing, attracting a large number of multinational enterprises to settle down. However, many of these products rely on imported components from countries like China and are only assembled in Vietnam before being exported to the United States. This has raised concerns among the US side that there might be "transshipment" behavior, using Vietnam to circumvent high tariffs on other countries, especially in areas such as electronics and clothing, which are particularly sensitive. Therefore, the United States has specifically imposed a 40% tariff on goods transshipped from third countries in this agreement, with the intention of strengthening the traceability of origin and the review of added value. In the future, Vietnam's manufacturing industry may face stricter reviews of raw material sources and production value.
Vietnam's exports to the United States increased by 35% in the first five months
The timing of the announcement of this agreement is quite sensitive. The 90-day grace period for the "reciprocal tariffs" imposed by the United States on most countries will expire on July 9. If no new agreement is reached, the maximum tariff on Vietnamese goods exported to the United States may be restored to 46%.
In recent years, many manufacturers have shifted their production to Vietnam, driving a significant increase in the country's exports of goods to the United States. Vietnam has become a major supplier of textiles and sportswear to the United States. Companies such as Nike, Gap, and Lululemon all have production plants there.
According to data from the US Census Bureau, Vietnam was the sixth largest source of imports for the United States last year, with a total value of goods exported to the US approaching 137 billion US dollars. Its trade surplus with the US ranked third among all countries, only after China and Mexico.
After Trump posted that a trade agreement had been reached with Vietnam, furniture and clothing stocks in the US stock market fluctuated sharply. The share prices of ON Holding and Lululemon both hit intraday highs, with gains reaching 7.2% and 2.9% respectively at one point. Nike's share price, with Vietnam as its main production center for shoes and clothing, rose rapidly, once increasing by more than 4%. After a short-term decline, the increase expanded again to over 3%.
The importance of the US market
The United States remains Vietnam's largest export destination. Last year, Vietnam's trade surplus with the United States reached as high as 123 billion US dollars. This new tariff agreement, although it sets a rate of 20%, is a huge buffer compared to the possible 46% implemented previously and has also helped Vietnam retain most of its export channels. However, for Vietnamese enterprises to achieve long-term and stable exports, they still need to make greater efforts in enhancing local added value and improving the compliance system of origin to meet the requirements of the US side.
The chain reaction of the agreement on China's textile industry
Trump's announcement of a trade agreement with Vietnam also has an impact that cannot be ignored on the global trade pattern. At the regional level, this might change the trade and industrial layout in Southeast Asia. In response to the tariffs imposed by the United States and the requirements of opening up its market, Vietnam may adjust its industrial policies, such as reducing its reliance on industrial imports from China and seeking more supply channels for raw materials and components. This may bring about new changes to the trade relations between China and Vietnam as well as the entire Southeast Asia region.
Supply chain shocks, the pressure of order and capacity transfer
As the "leader" in the global textile sector, China's textile industry has long held a pivotal position on the world textile stage, thanks to its complete industrial chain, strong production capacity and outstanding technological innovation capabilities. However, the conclusion of the US-Vietnam trade agreement undoubtedly brings new challenges to China's textile industry. Approximately 95% of the clothing sold in the US market is imported products, among which Chinese products account for about 30% and Vietnamese products 13%. With a 20% tariff imposed on Vietnamese goods exported to the United States, some American purchasers may, due to cost considerations, further shift their orders originally from China to Vietnam.
In recent years, many textile and garment enterprises have relocated their production capacity to Southeast Asian countries such as Vietnam due to factors like costs. Nowadays, in response to the US tariffs, Vietnam may further optimize its investment environment and attract more textile-related industries to settle in. This undoubtedly adds to the pressure on China's textile industry to relocate its production capacity. For instance, some mid-to-low-end clothing manufacturing enterprises that mainly export to the US market have limited profit margins for their products. In Vietnam, where they may gain a relative cost advantage due to agreements, they are more likely to lose orders and even face the predicament of production cuts or shutdowns.
Restrictions on re-export trade and the blocking of gray areas
The United States has long accused Vietnam of having a large number of Chinese goods re-exported to the US to evade high tariffs, and in this agreement, it has set a tariff as high as 40% on "re-export trade". Although the specific definition and implementation details of "re-export trade" are not yet fully clear at present, this move will undoubtedly have an impact on Chinese textile enterprises that conduct re-export trade through Vietnam.
Previously, some Chinese textile enterprises, in order to circumvent the tariffs imposed by the United States on Chinese textiles, chose to carry out simple processing or transshipment in Vietnam before exporting to the United States. With the implementation of the US-Vietnam agreement, this operational model is facing higher cost risks and policy uncertainties. Once identified as re-export trade, enterprises will bear high tariff costs, which may force them to abandon this trade route and re-plan their export routes and market layouts.
Domestic demand opportunities, domestic substitution and market deepening
Although the US-Vietnam trade agreement poses challenges to China's textile exports, it also brings certain opportunities to the domestic market from the side. As the United States has imposed additional tariffs on imported textiles, once it is determined to continue imposing high tariffs on Chinese products, China will also introduce countermeasures against American imported products. For some enterprises that rely on imported high-end textile materials, the cost performance of their imported products has declined, which provides alternative space for domestic high-end textiles. In recent years, the trend of domestic substitution in China's carbon fiber market has been obvious. During the pandemic, the increased difficulty of imports and foreign restrictions on exports have instead prompted domestic enterprises to increase their investment in research and development and achieve technological breakthroughs.
Chinese textile enterprises can take this opportunity to intensify their efforts in the domestic market, enhance cooperation with downstream enterprises such as domestic clothing brands, and develop more personalized and high-quality textile products in response to the demands of domestic consumers. Meanwhile, with the development of the domestic economy and the improvement of residents' consumption capacity, the domestic demand for textile and garment products continues to grow. Enterprises can increase their domestic market share and reduce their reliance on the single US export market by expanding online and offline sales channels and strengthening brand building.
The trade agreement signed between the United States and Vietnam is not merely about tariff adjustments. It is a complex economic game involving the interests of multiple parties. Can the United States reduce its trade deficit and revitalize its domestic industries through this agreement? Can Vietnam find new development opportunities in the process of opening up its market? Will the global trade pattern thus fall into greater uncertainty? Can China's textile industry seize opportunities amid challenges and achieve transformation and upgrading?
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