Vietnam faces an uphill battle in trade negotiations with the United States.

As I noted in a previous post, Vietnam was – and is – probably the single middle-income economy most endangered by the Trump Administration’s tariff policies. Vietnam has been running the third-largest trade surplus with the United States of any country in the world, and had been one of the key countries where companies had been assembling items made of Chinese components and then selling them to other markets, including the United States. This approach, even though encouraged by the prior U.S. administration, has earned the rage of President Trump and those working for him.

Even as Vietnam tried to appease the White House once reciprocal tariffs were imposed, senior White House officials continued to complain about Vietnam’s supposed law-breaking. When Vietnamese leaders offered to take Vietnam’s tariffs on U.S. goods down to zero, senior trade advisor Peter Navarro snapped: “Let’s take Vietnam. When they come to us and say ‘we’ll go to zero tariffs,’ that means nothing to us because it’s the nontariff cheating that matters,” Navarro said on CNBC’s “Squawk Box.”

According to CNBC, the examples of nontariff “cheating” cited by Navarro included Chinese products being routed through Vietnam, intellectual property theft, and a value-added tax.

Vietnam’s trade negotiators have again journeyed to Washington in recent weeks to try to work out a deal that would avoid massive reciprocal tariffs on Vietnamese goods exports when the 90-day tariff pause ends. Besides offering zero tariffs on U.S. imports and pledging to buy much more U.S. goods, like Boeing planes and American LNG, for instance, Vietnam has stepped on its own companies to buy American. Earlier this month, Vietnam’s trade ministry encouraged all manufacturers in the country to buy more U.S.-made goods to help balance the trade relationship. Vietnam is clearly worried about its position.

Despite Vietnam not having the leverage of those like Japan, South Korea, the European Union, and other big exporters to the United States – countries that can use their U.S. bond holdings, massive markets, or other tools to push back against coercion – Vietnamese leaders have become increasingly forthright about their anger at how the reciprocal tariffs were created, and the desire, as always in Vietnam, not to look like a tool of any foreign country. Just before bilateral trade talks began, Vietnam said that Trump’s tariffs were “unreasonable,” tough words from leaders who tend to play it close to the vest and try to hedge between Washington and Beijing. Prime Minister Pham Minh Chinh piled on, saying that though the tariffs have been delayed until July, they were threatening to unpick global supply chains, presenting Vietnam’s export-reliant economy with a “situation.” Chinh, like all to Vietnamese leaders, said this knowing that a real U.S. crackdown on Vietnamese exports to America would destroy Vietnam’s entire economic model, and would further push it to find alternative export markets in China and other countries in Asia or other parts of the world. Vietnam could do so, but it is not as prepared as countries like Australia, South Korea, Japan, or China to dig up big new markets in Latin America, Africa, or other parts of Asia.

Chinh claimed that bilateral talks with U.S. Trade Representative Jamieson Greer, who has been openly hostile in public testimony and briefings  toward a range of U.S. trade partners including Vietnam, were going well. The Vietnamese leaders, in exchange for zero tariffs, cracking down on transshipment of Chinese goods through Vietnam, and buying more U.S. goods, want to see Vietnam finally recognized as a market economy (a bar it has not met in the past), a modest tariff rate set, and an agreement to let Vietnam buy more high-tech U.S. exports, which would help with the trade balance. 

In return, Vietnam’s negotiators have been instructed by Chinh to request early recognition of Vietnam as a market economy – which the U.S. government declined to do last August after a lengthy review – and the removal of restrictions on high-tech exports, which will help reduce the large trade surplus with the United States.

Yet while the Trump administration claims that it is going to put together a group of eighteen to twenty countries that are going to have similar trade deals with the United States, and also will increasingly isolate China on trade, it is hard to imagine Vietnam fitting into that group. The Trump White House seems relatively uninterested in Vietnam’s strategic value – they are focused wholly on trade issues. There is deep historical animus in Vietnam toward China, as well as modern-day anger at China’s treatment of South China Sea disputes. But Vietnam is too close – geographically, economically, and in party-party cooperation – to China to be able to join such a coalition. It can only hope to play its weak hand well, and wind up with a decent deal – one that other larger and more powerful economies are not going to copy.

(Courtesy of Cfr.org)