A new 20% tariff agreement will alter automotive trade between the United States and Vietnam, with potential effects on China and strategies across the ASEAN region.

The United States has finalised a trade agreement with Vietnam, setting a 20% tariff on Vietnamese automotive imports to the US. This is lower than the previously proposed 46% "reciprocal" duty mentioned by US President Donald Trump on "Liberation Day".

In return, Vietnam has agreed to impose no tariffs on US products, according to Trump. While lower than the initially proposed 46% rate, the agreed tariff remains twice the current 10% global average.

According to the International Trade Centre (ITC), Vietnam's automotive exports to the United States - including vehicles and components - were valued at US$ 1.1 billion in 2024.

Domestic original equipment manufacturers (OEMs), such as VinFast, have contributed to production and export growth in recent years.

The agreement includes a provision introducing a 40% duty on transshipments from third countries. This is intended to prevent countries in the ASEAN region or nearby from routing goods through Vietnam to the United States to reduce tariff exposure. The effectiveness of this measure will depend on enforcement.

Rules of origin must be clearly defined, documented, and monitored. These rules are yet to be agreed upon by the two governments.

China responds to the Vietnam agreement

In response to the US-Vietnam agreement, China has expressed opposition to recent US trade arrangements with "certain countries".

While not officially confirmed, it is widely speculated that the transhipment provision in the US-Vietnam deal is intended to address the re-routing of Chinese goods through Vietnam, potentially affecting China's ability to avoid the 55% tariff currently applied to its exports to the United States.

China's reaction has introduced uncertainty around what President Trump had previously described as a "done deal" with China. Limited information has been released regarding this framework since its announcement last month.

A spokesperson for the Ministry of Commerce of the People's Republic of China described the tariffs as "a typical act of unilateral bullying that seriously undermines the multilateral trading system and disrupts the normal order of international trade."

The spokesperson also stated: "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 uphold international trade rules and the multilateral trading system.

"China opposes any agreement that it perceives as harming its interests in exchange for tariff exemptions. In such cases, China will respond to safeguard its stated rights and interests."