Source: YI CAI

Authors: Feng Difan

At a recent regular press conference held by China's Ministry of Foreign Affairs, a reporter asked: "The US has reached a trade agreement with Vietnam. It will impose a 20% tariff on Vietnamese goods and a 40% tariff on goods shipped to the US via Vietnam. This will affect Chinese goods passing through Vietnam. What is the Foreign Ministry's comment?" In response, Foreign Ministry Spokesperson Mao Ning stated that China consistently advocates for all parties to resolve economic and trade differences through equal dialogue and consultation. At the same time, relevant negotiations and agreements should not target or harm the interests of third parties.

How should the aforementioned 40% tariff be understood? Jian GUAN, a partner at Beijing Grandwin Law Firm, explained to a China Business News reporter that if a batch of products originally from a third country undergoes only minimal processing or transshipment in Vietnam, is then affixed with a "Made in Vietnam" label, and subsequently enters the United States, these goods would be considered "transshipped goods" and subject to the higher 40% tariff. This clause is intended to strengthen US supervision over compliance with supply chain and rules of origin requirements when imposing tariffs.

According to a report by CCTV News, on July 2nd (Eastern Time), former US President Donald Trump posted on his social media platform "Truth Social," revealing that Vietnam has agreed to "completely open its market" to the US, allowing American companies to sell products to Vietnam with zero tariffs. Jian GUAN cautioned that, considering Vietnam is a member of the Regional Comprehensive Economic Partnership (RCEP), these US products entering Vietnam tariff-free could potentially be re-exported to China or other RCEP countries under the guise of "Vietnamese origin," thereby weakening tariff barriers.

How to Understand the 40% Transshipment Tariff

Trump stated on social media: "Vietnam will pay the US a 20% tariff on all goods shipped to our country, and a 40% tariff on any transshipped goods." According to a review by the China Business News reporter, the term "transshipping" is not commonly used in this context.

Jian GUAN noted that this is not a professional international trade term. The key points for determination lie in issues such as value-added content and rules of origin.

He further explained that this "transshipment" is not simple transshipment. It involves a change in the product's origin. At the very least, the product obtains Vietnamese origin through simple processing or similar activities before being shipped to the United States.

"However, from an anti-circumvention perspective, the value-added ratio of such products in various aspects may still be insufficient. Therefore, it is defined as a transshipment product. This type of 'transshipment' is a different concept from our usual understanding of shipping goods to Vietnam and then re-exporting them," he explained. "Because without obtaining a Vietnamese Certificate of Origin, the actual origin remains China, and the Chinese tariff rate would apply."

In layman's terms, this type of transshipped product involves insufficient value addition/simple processing, followed by a change of origin, aiming to achieve "the effect of potentially lower export tariffs." Jian GUAN explained: Assume a product's components and raw materials largely originate from other countries. "If simple assembly is carried out in Vietnam, under Vietnam's rules of origin, it might be possible to obtain a Vietnamese Certificate of Origin. However, from the US perspective, this essentially means taking products from that other country, doing simple processing in Vietnam, and then transshipping them to the US."

He stated that based on current reports and information, the final rule is still related to the proportion of components. For instance, if the vast majority of a product's components come from Vietnam, it might qualify for lower tariff preferences. "According to some reports, products entirely manufactured and produced locally in Vietnam might even enjoy a uniform minimum tariff of 10%. Although the specific implementation details of this mechanism remain unclear, it suggests that the agreement indeed contains arrangements granting certain preferences based on origin."

In fact, considering that many industries in Vietnam have a pronounced "processing trade" characteristic, how this clause will be implemented in practice remains questionable.

It is worth noting that according to data from the Vietnamese side, in the first half of this year, Vietnam attracted a total of $21.51 billion in foreign direct investment (FDI), a year-on-year increase of 32.6%, the highest level for the same period since 2009. Data released by Vietnam's General Statistics Office under the Ministry of Finance on the 5th showed that the country's GDP in the second quarter of this year grew by 7.96% year-on-year, the fastest growth rate since 2022.

What Does Vietnam's Zero Tariff for the US Mean?

As mentioned above, it's reported that Vietnam has also committed to completely opening its market to the US and allowing US companies to sell products to Vietnam with zero tariffs. This means that US products entering Vietnam tariff-free could potentially be re-exported to other RCEP countries, thereby weakening tariff barriers.

For the US, "this might not have been a deliberate negotiation outcome, but could be an unexpected bonus," Jian GUAN told theChina Business Newsreporter. He indicated that aside from the direct tariff arrangements, this commitment constitutes one of the most structurally impactful parts of the current US-Vietnam tariff agreement—Vietnam's pledge to implement zero tariffs on US products and eliminate major non-tariff barriers.

"This clause is not only significant bilaterally but will also generate spillover effects at the regional level," Jian GUAN stated. If this happens, it could create competitive pressure on similar domestic Chinese products, potentially squeezing the market space for Chinese products within the RCEP region.

According to data from the Office of the United States Trade Representative, the total value of US imports of goods from Vietnam in 2024 exceeded $136 billion, while US exports of goods to Vietnam amounted to approximately $13 billion.

What Other Changes and Impacts Might Occur?

Jian GUAN suggested that against the backdrop of escalating trade frictions, some Chinese companies might face higher export costs and uncertainty. He explained: "From a supply chain perspective, this agreement could alter the layout of some industrial chains. With the introduction of this agreement, Vietnam's tariff advantage as an alternative production base is weakened: even goods produced in Vietnam that qualify for origin preferences would still need to pay at least a 10% tariff, significantly higher than the previous baseline rates of 5% or 10%. This means some cost-sensitive orders might reassess whether to remain in Vietnam."

He stated that previously, some companies exporting goods to the US often relied on transshipment via Vietnam. Under the new policy, such channels would face a high 40% tariff, rather than the 20% rate or even lower rates originally set for Vietnamese products. This undoubtedly increases the costs of these goods.

He Yongqian, a spokesperson for China's Ministry of Commerce, also responded to relevant questions at a previous regular press conference. She stated that the Ministry has taken note of the relevant situation and is conducting assessments. China's position is consistent. We are pleased to see parties resolve economic and trade differences with the US through equal consultations, but we firmly oppose any party reaching a deal at the expense of China's interests. Should such a situation occur, China will resolutely take countermeasures to safeguard its legitimate rights and interests.

Jian GUAN told the reporter that the US has previously conducted anti-circumvention investigations and anti-duty evasion investigations targeting Southeast Asian countries, employing various enforcement measures against them. The current use of so-called "reciprocal tariffs" essentially represents a more generalized approach in methodology.

Previously, when many Chinese companies were expanding overseas, "our advice to them was to genuinely diversify their supply chains more locally," Jian GUAN said. In the recent US foreign tariff negotiations, this 40% transshipment tariff model applied to Vietnam is highly likely to become a standard template.