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US-Vietnam trade deal primarily targets China

ICICIdirect Research 04 Jul 2025 DISCLAIMER

US signed a new tariff agreement with Vietnam on 2nd July agreeing for tariffs at the rate of 20% reduced from 46% imposed on liberation day. Additionally, the US has also levied a 40% tariff on transhipment of goods through Vietnam.

Is Vietnam trade deal aim at blocking the back door entry for Chinese goods to enter US through Vietnam?

Vietnam had agreed to a 40% duty on any products that originally came from another country, but were sent to Vietnam for final shipment to the U.S.  Past and current years data suggest that China has relied on this practice to avoid any trade barriers. For first 5 months of 2025, China exports to US declined by 10% while its exports to Vietnam grew by 28%. On the other hand, Vietnam’s export to US grew by 26%. Thus, data hints towards, China’s backdoor entry from Vietnam to enter US market.

What could be a potential impact for India?

Currently India is paying a tariff of 26% on goods sent to the US, which is slightly higher than Vietnam tariff imposition of 20%. If India manages to sign favourable trade deal with US at lower tariff rate of 10-20% it might gain competitive advantage over China to increase its share in the US textile export market. Further factors such as political uncertainty in Bangladesh will lead to likely shift of supply base to India in the near to medium term.

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