US pressuring Vietnam to downgrade economic ties with China

Washington is driving a hard bargain in its ongoing trade and tariff negotiations with Hanoi.

Yesterday, Reuters news agency published a report offering an update on Vietnam’s tariff negotiations with the U.S. government. According to the report, which was based on numerous unnamed sources with knowledge about the state of negotiations, U.S. trade negotiators have sent a list of “tough” requests that would force the country to “cut its reliance on Chinese industrial goods imports” and, potentially, upset Vietnam’s diplomatic dance between Washington and Beijing.

The report states that the Trump administration “wants Vietnam-based factories to reduce their use of materials and components from China and is asking the country to control more carefully its production and supply chains.”

This demand was included as “part of an ‘annex’ to a framework text prepared by U.S. negotiators” that was sent to Vietnam at the end of last month, shortly after the conclusion of the second round of trade talks between the two nations.

During the talks, Vietnamese negotiators are hoping to push down the 46 percent tariff announced by President Donald Trump during his “liberation day” tariff announcement. If imposed in full next month, the tariff would pose a potentially existential threat to Vietnam’s export-led economic model. The U.S. is the main destination for Vietnamese exports, which totaled $136.6 billion in 2024, according to the Office of the U.S. Trade Representative. This accounted for 29 percent of its total exports and a whopping 30 percent of its GDP.

Sources quoted by Reuters described the U.S. requests as “tough” and “difficult” for Vietnam, given the extent to which its economy is tightly entwined with China-centered supply chains.

In economic terms, Vietnam was one of the great winners of Trump’s first term in office. As multinational firms set up factories in Vietnam to reduce their reliance on China as a manufacturing base, the country sharply increased its export share to the U.S. in all categories of products. Accordingly, its trade surplus with the U.S. spiked from $38.3 billion in 2017 to $123.5 billion last year.

However, this sharp increase in exports was enabled by a similar increase in imports from China, a key source of many of the raw materials and electronic components that are used by Vietnam-based manufacturers such as Samsung and Nike. As Reuters notes, the inflow of Chinese goods has “almost exactly” matched the outflow of exports to the U.S. in Vietnam’s trade statistics.

U.S. officials allege that a good deal of the surplus is made up of Chinese goods that have been fraudulently rerouted through Vietnam to avoid the tariffs of China. Speaking on Fox News in April, Trump’s hawkish trade adviser Peter Navarro accused Vietnam of acting as a “transshipment” point for Chinese goods, describing it as “essentially a colony of communist China.”

All of this has put Vietnam in a tricky position. Before the announcement of the tariff in April – indeed, even prior to Trump’s inauguration – Vietnam had made a number of suggestions of how it could reduce its trade surplus, such as purchasing more American liquefied natural gas and aircraft. Vietnamese leaders have also pledged to clamp down on the fraudulent transshipment of Chinese goods via their territory.

Earlier this week, Vietnam’s Ministry of Agriculture announced that Vietnamese firms will finalize agreements with U.S. partners to buy $2 billion worth of American farm produce. Flag carrier Vietnam Airlines is also close to finalizing an order for 50 Boeing 737 MAX jets. However, sources cited in yesterday’s Reuters report suggested that these concessions might not be enough for U.S. negotiators.

Whether the U.S. demand is based on a realistic perception of the Vietnamese economy or is ignorant of its structural realities remains unclear. But it is clear that any attempt by Vietnam to extricate itself from China-centered supply chains would lead to a sharp drop in exports to the U.S., with significant economic, social, and possibly political implications. It could also damage Vietnam’s relationship with China, which has been premised on reassurances that Hanoi will never join a U.S.-led anti-China coalition.

For these reasons, while it is reasonable to expect that Hanoi will take steps to prevent tariff evasion by Chinese manufacturers, it is hard to see Vietnamese officials agreeing to binding commitments about its economic relationship with China writ large. In any event, if the U.S. government ends up pushing these demands beyond a certain point, it is hard not to see it inflicting significant damage on the U.S.-Vietnam relationship.

By Sebastian Strangio – The Diplomat – June 4, 2025