In his first term, President Donald Trump forced companies to stop depending on China. He is now pressing countries to expel China from their supply chains.
A preliminary commercial pact between Vietnam and the United States announced Wednesday is the most significant step so far towards that goal. Although the details are scarce, Vietnamese exports to the United States will face a 20 percent tariff, less than the much higher rate with which Trump had threatened.
But, above all, the agreement would impose a 40 percent tariff to any export of Vietnam classified as transford, that is, goods that originate in another country and simply pass through Vietnam.
The sanction points to China, which has used Vietnam and neighboring countries to avoid US tariffs about their merchandise. And it could become a characteristic of the United States trade agreements with other Governments of Southeast Asia, which try to avoid astronomical tariffs that will enter into force on Wednesday.
Trump’s commercial negotiators are pressing the residents of Vietnam oriented to export, such as Indonesia, to reduce the amount of Chinese content in their supply chains. They are asking the Thailand government to control incoming foreign investments, hoping to prevent Chinese companies from installing in the country. They are even pressing some countries to consider the possibility of controlling the export of technology such as semiconductors.
“Trump’s government is saying: ‘We need to see a strategic dissociation if they are going to be business partners in the United States,” said Steve Okun, executive director of Apac Advisors, a geopolitical consultant. “The question is whether countries will accept that.”
The United States efforts to isolate China increase the vulnerabilities facing Southeast Asia countries, a strategically important region for Beijing and is already in the front line of the Chinese domain of trade and world manufacture. On Thursday, the Chinese Ministry of Commerce said it was “carrying out an evaluation” of the agreement between the United States and Vietnam, and added that it firmly opposed any agreement that occurred “at the expense of China’s interests” and that it would take “countermeasted to safeguard their legitimate rights and interests.”
The commercial conditions that the United States and Vietnam have agreed so far will also depend on how they are defined: for example, how many Chinese inputs will be allowed in Vietnamese exports and how they will apply.
Vietnam had all to lose when starting commercial conversations with the United States. Trump threatened the country with an import tax of 46 percent on its products, which caused a shock in sectors such as footwear, clothing and electronics, which have come to depend on the country as an alternative to China.
The uncertainty caused by the threat of Trump tariffs weighed on Vietnamese companies.
A 20 percent tariff was not the best scenario for anyone, said Tran Quang, executive of a home fragrance company that exports almost all its products to the United States. “But it’s not so bad,” he said.
He added that he supports the highest tariff on the transford because he could help local Vietnamese companies face the unfair competition of Chinese companies that have invested in Vietnam to avoid tariffs.
“There are many small Chinese companies that come to Vietnam only to re -rectimate their products before exporting them to the United States,” he said.
The trade and investment of Chinese companies have contributed to promoting economic growth in Vietnam and in the region, but Southeast Asia is fighting to reject the Torrente of Merchandise from China that are leaving national companies out of the game. In recent years, with the Chinese economy threatened by a real estate crisis, the Government has strongly subsidized factories, which has caused an increase in Chinese exports to everyone.
But the limitations for Chinese trade in the region are at risk of triggering chain reactions that could harm the countries of Southeast Asia.
The lack of information published so far on the agreement with Vietnam makes it impossible to fully calibrate its impact, experts said. The transford could refer to products from China. It could also include things that are manufactured in Vietnam but have a certain percentage of Chinese pieces.
But if the limits on Chinese components end up being strict, US companies could move their production outside Vietnam, said Matt Priest, executive director of the commercial organization distributors and retail women in the United States.
“If it is too heavy or difficult to meet, companies will not take the opportunity to increase supply from Vietnam,” he said. “They may even return to China if it is competitive in price.”
The pact with Vietnam also leaves companies in uncertainty, which wait to see what kind of tariffs and restrictions on China accept other Southeast Asian countries in possible agreements with the Trump government.
Restrictions on the amount of Chinese content in exported products also involve a burden for local customs officials, who had never been asked to examine exports so closely, which raises doubts about their effectiveness. Some countries have even discussed the creation of totally different supply chains for the United States.
Washington also runs the risk of putting some countries that are deeply integrated into the Chinese economy into a pekin tray.
Many Asian governments are concerned how China could respond to the agreements that intend to isolate Chinese companies. Beijing has shown that it is willing to take increasingly aggressive retaliation measures, such as boycotting products and restricting the critical minerals on which its neighbors depend. He has also resorted to intensify tensions in the South China Sea, where he has militarily claimed a large part of the sea.
“Politically, we have to be careful between the two superpowers,” said Pavida Pananond, international business professor at Thammasat University in Thailand. “China is a very important economic power, not only as an importer of goods, but as a source of investments and export destination.”
Southeast Asian countries have taken their own measures to reinforce surveillance and application of transfers in recent weeks, which provides an idea of what they could agree on their own commercial agreements with Washington.
In Thailand, where Trump has threatened to impose tariffs of 36 percent, the government has calculated that its measures to examine the transford exports closely could reduce its exports to the United States by 15,000 million dollars, which is equivalent to one third of Thailand’s commercial surplus with Washington last year. He has also promised to examine foreign investments in areas such as electric vehicles, in which Chinese companies have invested a lot of money to bring to Thailand their own suppliers.
The authorities of Malaysia and Indonesia have hardened export standards to ensure that shipments to the United States are exactly documented. Both countries have also centralized the authority to issue export certificates.
Even before no commercial agreement is reached, the Trump government is already modifying the way in which the region sees China.
“The idea is to expel China,” said Deborah Elms, responsible for commercial policy of the Hinrich Foundation, an organization dedicated to trade.
But for countries like Vietnam, accepting what the United States wants is risky from the geopolitical point of view.
“It is a risky bet to see how the United States, China and the companies in your country respond,” said Elms.