🎧 Listen to This Article
The United States and Vietnam are nearing an unprecedented trade agreement that would introduce graduated tariffs on Vietnamese exports, based on the percentage of foreign content embedded in the goods. The proposed framework, confirmed by multiple sources familiar with the negotiations, could have profound implications for multinational supply chains, particularly those reliant on Vietnamese manufacturing as an alternative to China.
According to the latest discussions, Vietnamese exports with high levels of foreign input—especially Chinese-sourced materials—will face tariffs of 20% or more, while goods predominantly made from domestic Vietnamese content may be taxed as low as 10%.
Former President Donald Trump, leading the U.S. trade strategy in his current administration, has publicly stated that Vietnam will face an average 20% tariff on exports to the U.S., reinforcing his broader campaign to “reclaim American industrial sovereignty.”
Why This Matters: A Blow to ‘China-Plus-One’ Strategy
Vietnam has long been a linchpin in the “China+1” strategy, adopted by global corporations to diversify production away from China amid rising geopolitical and cost pressures. But Vietnam’s deep reliance on Chinese raw materials—ranging from electronics components to textiles—may now become a liability under the new U.S. tariff rules.
Experts estimate that Vietnam could face as much as $25 billion in additional tax liabilities if the U.S. imposes a 10-15% average tariff on goods with significant foreign input.
“This tariff model is surgical—it’s aimed less at Vietnam and more at the Chinese value embedded in Vietnamese exports,” said one former USTR negotiator who spoke on condition of anonymity. “But the collateral damage for Vietnamese suppliers and U.S. importers could be substantial.”
Tariffs Based on Origin: A Complex Administrative Shift
The proposed framework marks a notable departure from traditional country-of-origin rules, effectively demanding granular traceability of supply chains to determine the foreign content embedded in each shipment.
This poses a substantial compliance burden for exporters, customs brokers, and multinational corporations sourcing from Vietnam. Analysts expect that:
- Companies will need to maintain detailed bills of materials (BoMs) and supplier certifications.
- Rules of origin audits could become frequent and contentious.
- Transfer pricing strategies may need reevaluation in light of tariff segmentation.
Vietnam’s Strategic Dilemma: Diversify or Pay
Vietnam now faces a strategic dilemma: either invest rapidly in localizing supply chains—a costly and time-intensive endeavor—or risk losing competitiveness in its most important export market.
Data from Vietnam’s Ministry of Industry and Trade shows that nearly 60% of intermediate inputs in key export sectors—electronics, apparel, furniture—originate outside Vietnam, primarily from China and South Korea.
Prime Minister Phạm Minh Chính’s administration is said to be negotiating exceptions and transition timelines, but Trump’s team appears intent on pushing the framework forward before the U.S. November elections.
Global Business Implications
- Multinationals with factories in Vietnam may be forced to reallocate production to countries with cleaner origin profiles such as Mexico, India, or the Philippines.
- Customs compliance systems will need to integrate deeper materials sourcing audits.
- Trade policy risk is again taking center stage in boardroom risk assessments, echoing the earlier U.S.-China tariff wars.
For further details, clarification, contributions, or any concerns regarding this article, please get in touch with us at editorial@tax.news. We value your feedback and are committed to providing accurate and timely information. Please note that our privacy policy will handle all inquiries.
