Trump wants the world to squeeze out China. He's starting with Vietnam

Time of India

14 hours ago

In his first term, President
Donald Trump
forced companies to kick their dependence on China. Now he is pressing countries to squeeze China out of their supply chains.
A preliminary trade pact between
Vietnam
and the United States announced Wednesday is the most significant step so far toward that goal. Although the details are sparse, Vietnamese exports to the United States will face a 20% tariff, less than a much higher rate that Trump had threatened.
But notably, the deal would put a 40% tariff on any export from Vietnam classified as a transshipment, or goods that originated in another country and were merely passed through Vietnam.
The penalty aims at China, which has used Vietnam and neighbouring countries to circumvent U.S. tariffs on its goods. And it could become a feature of U.S. trade deals with other Southeast Asian governments as they try to avert sky-high tariffs that take effect Wednesday.
Trump's trade negotiators are pushing Vietnam's export oriented neighbors like Indonesia to reduce how much Chinese content is in their supply chains. They are asking the government of Thailand to screen incoming foreign investment, hoping to stop Chinese businesses from moving into the country. They are even pressuring some countries to consider export controls of technology like semiconductors.
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"The Trump administration is saying, 'We need to see strategic decoupling if you are going to be a trade partner with the U.S.,'" said Steve Okun, CEO of APAC Advisors, a geopolitical consulting firm. "The question is, will countries agree to that?"
The U.S. efforts to sequester China heighten the vulnerabilities faced by countries in Southeast Asia, a strategically important region for Beijing and already on the front line of China's domination of global trade and manufacturing. On Thursday, China's Commerce Ministry said it was "conducting an assessment" of the U.S.-Vietnam agreement, adding that it firmly opposed any deal that came "at the expense of China's interest" and would "take countermeasures to safeguard its legitimate rights and interests."
The trade terms that the United States and Vietnam have so far agreed to will also hinge on how they are defined -- for example, how much Chinese inputs will be allowed in Vietnamese exports, and how they will be enforced.
Vietnam had everything to lose going into trade talks with the United States. Trump threatened the country with an import tax of 46% on its goods, sending shock waves through industries such as footwear, garment and electronics that have come to depend on the country as an alternative to China.
The uncertainty caused by Trump's threat of tariffs was weighing on Vietnamese businesses.
A 20% tariff was not anyone's best-case scenario, said Tran Quang, an executive at a home fragrance company that exports nearly all of its products to the United States. "But it is not so bad," he said.
He added that he supports the steeper duty on transshipment because it could help local Vietnamese businesses facing unfair competition from Chinese companies that have invested in Vietnam to escape tariffs.
"There are a lot of small Chinese guys who come to Vietnam just to relabel their products before exporting to the U.S.," he said.
Trade and investment from Chinese companies has helped bolster economic growth in Vietnam and the region, but Southeast Asia is struggling to beat back the torrent of goods from China that are putting domestic companies out of business. In recent years, with China's economy threatened by a real estate crisis, the government has heavily subsidised factories leading to a surge in Chinese exports around the world.
But limitations on China's trade in the region risk setting off chain reactions that could damage Southeast Asian countries.
The lack of information so far released about the Vietnam deal make it impossible to fully gauge its impact, experts said. Transshipment could refer to products that originate in China. It could also include things that are made in Vietnam but have a certain percentage of Chinese parts.
But if the limits on Chinese components end up being strict, American companies could move their production out of Vietnam, said Matt Priest, CEO of the Footwear Distributors and Retailers of America, a trade group.
"If it's too onerous or difficult to comply, companies won't use the opportunity to grow sourcing in Vietnam," he said. "They may even head back to China if it's price competitive."
The pact with Vietnam also leaves uncertainty for businesses as they wait to see what kind of tariffs and restrictions on China other Southeast Asian countries agree to in potential deals with the Trump administration.
The restrictions on the amount of Chinese content in exported products also places a burden on local customs officials who have never been asked to scrutinise exports so closely, raising questions about how effective they will be. Some countries have even discussed setting up entirely different supply chains for the United States.
Washington also risks pushing some countries that are deeply integrated with China's economy into Beijing's arms.
Many Asian governments are concerned about how China could respond to deals that seek to isolate Chinese firms. Beijing has shown that it is willing to take increasingly aggressive retaliatory measures such as boycotting products and restricting critical minerals that its neighbors depend on. It has also turned to ratcheting up tensions in the South China Sea, where it has made military claims to much of the waterway.
"Politically we have to tread carefully between the two superpowers," said Pavida Pananond, professor of International Business at Thammasat University in Thailand. "China is a very important economic power, not just as an importer of goods but a source of investment and destination for exports."
Southeast Asian countries have taken their own steps to tighten monitoring and enforcement of transshipment in recent weeks, providing some insight into what they might agree to in their own trade pacts with Washington.
In Thailand, where Trump has threatened 36% tariffs, the government has estimated that its actions to closely scrutinise exports for transshipment could reduce its exports to the United States by $15 billion, equivalent to one-third of Thailand's trade surplus with Washington in 2024. It has also promised to look more closely at foreign investments in areas like electric vehicles where Chinese companies have invested a lot of money to bring their own suppliers into Thailand.
Authorities in Malaysia and Indonesia have tightened export rules to ensure that shipments to the United States are accurately documented. Both countries also centralized the authority to issue certificates for exports.
Even before any trade deals are hammered out, the Trump administration is already reshaping how the region views China.
"The idea is to squeeze China out," said Deborah Elms, head of trade policy at the Hinrich Foundation, an organisation that focuses on trade.
But for countries like Vietnam, going along with what the United States wants is geopolitically risky.
"It's a gamble all around to see how the U.S., China and companies in your country will respond," Elms said.