On Tuesday July 8, the Vietnamese government said that Prime Minister Pham Minh Chinh and his Chinese counterpart Li Qiang have agreed to strengthen trade ties between the two countries, following a meeting held during the BRICS (Brazil, Russia, India, China and South Africa) summit in Brazil.

The decision came days after US President Donald Trump announced a trade deal with Vietnam, stipulating that 20% tariffs would be imposed on all exports from the Asian country to the USA, as well as a 40% surtax on products from third countries transiting through Vietnam.

The USA did not provide details about the 40% surtax, but analysts believe they would apply chiefly to components and materials coming from China, the main source of material inputs for Vietnam’s manufacturing industries.

Vietnam and its factories have emerged as one of the world’s main producers of apparel and footwear, attracting international brands thanks to the country’s abundant supply of cheap labour. In H1, Vietnam became the leading apparel supplier to the USA, ahead of the former number one, China.

Vietnam also plays a key role in global supply chains as a transit point for products manufactured mostly in China and labelled ‘Made in Vietnam’.

Under the new US-Vietnam deal, tariffs would still be lower than the original 46% rate that the White House indicated in April, while Vietnam has agreed to exempt from tariffs US products exported into the country.

Speaking with Li Qiang, Pham Minh Chinh also called on China to prioritise the two countries’ cooperation on railway construction, adding that Vietnam is set to begin building a new rail link to China in December.

The Vietnamese textile industry is clearly interested in this rapprochement with China, which has long invested in apparel production infrastructure in Vietnam. Textiles and apparel account for 16% of Vietnam’s GDP, for 13% of its exports, and generate nearly three million jobs in the country. The USA is the destination for nearly 38% of Vietnam’s apparel exports. This explains why Vietnam has recently called on US brands to remain loyal to their Vietnamese suppliers.

(with Reuters)