US-Vietnam trade deal: Impact on automotive sector

The US has agreed a trade deal with Vietnam, settling on a 20% tariff on its imports to the US, rather than the 46% “reciprocal” duty that US president Donald Trump had threatened on “Liberation Day”. In return, Vietnam will charge no tariffs on US products, according to Trump.

While significantly lower than the threatened 46%, the rate is still double the current 10% global tariffs.

Vietnam’s automotive exports to the US, including vehicles and components, totalled $1.1 billion in value in 2024, according to the International Trade Centre (ITC). Domestic OEMs like Vinfast have helped to boost production and exports in recent years.

An interesting aspect of the agreement is a 40% duty on transshipments from third countries, meaning that other countries in the ASEAN region or nearby cannot first ship goods to Vietnam, and then ship from Vietnam to the US, to try to lower tariffs. If enforced correctly, this would reduce any potential nearshoring strategies around Vietnam, but it is likely to be difficult to enforce. Rules of origin will need to be closely documented and monitored, but these will first need to be agreed between the two countries.

China responds to Vietnam deal

Following the Vietnam deal, China has reacted negatively to US deals with “certain countries”. While unconfirmed, it is speculated that the transshipment tariffs in the US-Vietnam deal are aimed at China, essentially making it more difficult for the country to skirt its 55% tariffs on its imports to the US.

China’s criticism throws what Trump called a “done deal” with China into question. Only limited details of this framework between the US and China have been released since it was announced last month.

A spokesperson for the Ministry of Commerce of the People’s Republic of China called the tariffs “a typical act of unilateral bullying that seriously undermines the multilateral trading system and disrupts the normal order of international trade”.

The spokesperson added: “China welcomes efforts by other parties to resolve trade disputes with the US through consultations on the basis of equality. At the same time, we urge all parties to stand on the side of fairness and justice and on the right side of history in resolutely upholding international trade rules and the multilateral trading system.

“China firmly opposes any deal made at the expense of China’s interests in exchange for so-called tariff exemptions. Should such a situation arise, China will never accept it and will take resolute countermeasures to safeguard its legitimate rights and interests.”

We will update this story when more information becomes available...