US trade deal with Vietnam

Made in Vietnam, Powered by China: A $50 Billion Trade Illusion?

A concerning, yet often overlooked, aspect of China's trade behaviour is its practice of exporting goods through third countries. This strategy, known as trade deflection, allows China to dodge tariffs and trade restrictions set by other nations, raising questions about fair trade practices.

Despite the tariffs and trade restrictions supposedly in place, China's trade surplus with the US reached a whopping $263 billion in 2024, according to the US Bureau of Economic Analysis. Our exports to them? A paltry $199 billion. How does China manage to circumvent our measures and maintain such a massive advantage? The answer, I believe, lies in their clever use of third countries to bypass regulations and continue exporting their goods to the US.

The latest trade figures should set off alarm bells. Even with the current tariffs, China maintains a trade surplus of almost $20.5 billion with the US. While their overall exports saw a slight decrease of 2.5 percent, this is hardly a victory. We need to seriously investigate how China is mitigating the impact of these tariffs and continuing to benefit from trade imbalances. This demands immediate scrutiny.

This isn't a recent development. Since the initial implementation of tariffs during the first Trump administration, China has been strategically adapting. They've leveraged the geographic proximity and strategic positioning of countries like Vietnam, Malaysia, Thailand, Singapore, and Hong Kong, transforming them into transit points for goods destined for the US. This long-term strategy underscores China's commitment to maintaining its trade advantage, regardless of US policy.

The new trade deal between the US and Vietnam, which includes provisions for tariffs on products originating from third countries, is a clear attempt to prevent China from flooding the US market with goods that bypass existing trade restrictions. The Chinese government's response, threatening countries that enter into trade agreements at China's expense, highlights their determination to maintain their dominance. However, the question remains: how can nations justify not imposing tariffs on goods from third-world countries, especially knowing that China exploits these routes to circumvent restrictions imposed by other nations? This creates a complex dilemma, forcing countries to balance their economic interests with the need to address unfair trade practices and protect their own industries from Chinese circumvention strategies.

Vietnam has managed to avoid the reciprocal tariffs proposed by the Trump administration, which were set to take effect next week at a rate of 46%. However, under this new negotiation, Vietnamese goods will now be tariffed at 20%, while US products entering Vietnam will face zero tariffs. This arrangement, while seemingly beneficial for US exports, still raises questions about the broader strategy for addressing China's circumvention tactics. The reduced tariff on Vietnamese goods, while lower than initially proposed, may still incentivise China to use Vietnam as a transit point, albeit at a slightly higher cost. The effectiveness of this strategy hinges on rigorous enforcement and monitoring to ensure that goods claiming Vietnamese origin are genuinely produced there and not simply re-labeled Chinese products.

A key aspect of the agreement is the US imposition of a 40% tariff on goods trans-shipped through Vietnam, effectively targeting Chinese goods routed through the country. This measure aims to deter what some might consider "cheating." After all, if a trade agreement is made and honored in good faith, why circumvent it by routing goods through other nations? This practice seems inherently dishonest, and in my opinion, Trump's instinct to anticipate and address such tactics is one of his strongest attributes, which is why the Chinese government is likely displeased with this development. The question of whether this approach is fair or unfair is complex, but it underscores the challenges of enforcing trade agreements in a globalised economy where circumvention strategies are constantly evolving especially by China. This part of the agreement is beautifully called the great deal of cooperation.

Peter Navarro, Trump's senior counsellor on trade and manufacturing, has dropped a bombshell that could reignite trade tensions. According to Navarro, a staggering third of all Vietnamese exports to the U.S. are actually Chinese products which is interesting.

Let's break down the numbers: Total exports from Vietnam to the U.S. hit $149.6 billion. If Navarro's claim is accurate, that means a whopping $49.86 billion worth of Chinese goods slipped into the U.S. under a "Made in Vietnam" label in 2024. This isn't just a rounding error; it's a massive loophole that undermines the entire premise of Trump's trade policies.

Is Vietnam intentionally turning a blind eye, or actively participating in this scheme? Either way, Navarro's accusation demands immediate investigation. If proven true, the U.S. must act swiftly to close this backdoor, or risk rendering its entire trade strategy toothless.

This is precisely why the previous US administration was right to focus on rebalancing the trade deficit with China. Fair trade is impossible when such imbalances persist, and sustainable business relationships cannot be built on such shaky ground. To be clear, this isn't about being "anti-China." It's about acknowledging a pattern of unfair trade practices that have allowed China to flood global markets, a strategy that simply cannot be sustained in the long run. That’s why acting now is better than waiting.