China in way of trade deal between U.S. and Vietnam

Talks hampered as origin of some goods questioned

Clothing bundles from Chinese fast-fashion retailer Shein await shipment at a factory in Guangzhou, China, on Feb. 12. Vietnam has been one of the country’s most publicly willing to negotiate a tariff trade deal with the Trump administration, but China’s role in the country’s manufacturing economy is emerging as the biggest obstacle to an agreement. Photos by Gilles Sabrié — NYT

Workers sew at a clothing factory in Ho Chi Minh, Vietnam, where 60% of fabrics for manufacturing come from China.

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By Alexandra Stevenson and Tung Ngo

The New York Times

HO CHI MINH CITY, Vietnam — China’s giant logistics machine was humming inside rows of metal warehouses near Ho Chi Minh City in southern Vietnam this month. Hundreds of workers packed cosmetics, clothes and shoes for Shein, the Chinese fast-fashion retailer. Recruiters needing to fill hundreds more jobs were interviewing candidates outside.

At another industrial park, owned by the supply chain arm of Alibaba, the Chinese e-commerce giant, trucks drove in and out at a steady clip.

This kind of activity, powered by Chinese money, has brought jobs to Vietnam. It is one of the forces that have made Vietnam a thriving destination for companies around the world looking for alternatives to China’s factories.

But as President Donald Trump’s trade war is turning supply chains upside down, China’s role is emerging as the biggest obstacle for Vietnam as it tries to avoid a 46% tariff.

Vietnamese officials are rushing to secure a deal before a 90-day pause on the new tariffs ends in early July. They met with Trump administration officials in Washington this past week for a second round of talks. The talks will resume next month, Vietnamese officials said.

The Trump administration wants Vietnam to do more to crack down on companies that are rerouting goods from China to Vietnam to avoid tariffs, a practice known as transshipment.

But the administration is also taking a view of the issue that goes beyond the usual definition of transshipment as it tries to wean the U.S. economy off its dependence on Chinese imports. That puts countries that rely on China to make goods they export under heavy pressure.

For Vietnam, the challenge is proving that what it sends to the United States was made in Vietnam and not in China. In a sign of the awkward position it finds itself in, Peter Navarro, a top trade adviser to Trump, recently called Vietnam “a colony of China.”Vietnam was a big beneficiary of tariffs that Trump placed on Chinese goods during his first presidency. Its trade surplus with the United States swelled to $123.5 billion in 2024, from $38.3 billion in 2017.

The reordering of trade flows accelerated in April, when China was facing 145% tariffs, Vietnamese imports from China ballooned to $15 billion while its exports to the United States totaled $12 billion. Beijing and Washington have since reached a temporary deal to slash the tariffs.

“The priority for Trump is for Vietnam to fix the transshipment problem and make sure that the two countries can sign something that shows Vietnam is taking action,” said Adam Sitkoff, the executive director of the American Chamber of Commerce in Hanoi.

In response, Vietnam created a special task force this month to “aggressively crack down on smuggling, trade fraud” and “the export of goods falsely labeled as ‘Made in Vietnam,’” and its finance ministry has met with U.S. Customs and Border Protection to talk about working together and sharing information. Despite the efforts, Trump officials have said it is not enough.

“It has become very difficult for Vietnam to justify to the U.S. government that this isn’t just rerouting Chinese goods,” said Priyanka Kishore, an economist in Singapore and the founder of Asia Decoded, a consulting firm.

“China is Vietnam’s biggest intermediate goods supplier, so if you are pushing your exports to the U.S. up, you would see an increase in imports from China,” Kishore said.

Vietnam and other Asian countries depend on China for the supplies used to make finished goods. So as production shifts from factories in China to factories elsewhere, much of the spike in exports from China to its neighbors may be raw materials used by factories.

Still, some Vietnamese imports from China are undeniably finished goods shipped through Vietnam to other countries with their origin in China disguised, which is universally considered illegal.

There is little data on exactly how much falls into the category of transshipment, Kishore said. By one estimate, rerouting activity increased to 16.5% of exports to the United States after Trump’s first-term tariffs on China, driven in part by Chinese-owned companies.

The prohibitively high tariffs on Chinese goods last month caused more manufacturers to seek options in Vietnam. After Trump ended a loophole that let Americans buy cheap goods from China tax free, Shein offered guidance and subsidies to factories to move operations to Vietnam. Shein did not respond to a request for comment.