Tariff, a word few laymen have heard before April 2nd, and those not familiar with Financial Times or the Economist, may gain a grand entrance to the ‘word-of-the-year’ hall of fame in 2025, after the sweeping imposition by Donald Trump.
The questions which will be addressed here are:
- What is it?
- Why was it used?
- Where did the stupendous rate (46%) come from?
- What are the implications for Vietnam?
What is it?
Tariff (in commerce), is a type of tax which an importer must pay upon the arrival of goods to a destination country. To illustrate, Nike makes footwears in Vietnam and sells it in the US; it is required by law to pay the tariff once their cargo reaches US ports of entry, be it airports, or seaports. The same principle applies to Apple products and other renowned brands, should they wish to enter the US market.
Why was it used?
Donald Trump is universally depicted as ‘mercurial’, erratic or unpredictable. Yet one of his long-held beliefs, a strong commitment to a healthy domestic manufacturing sector, still remains. He often laments (than thở) the decline of former industrial powerhouses, such as Detroit, once the capital of automobile behemoths (gã khổng lồ), and the Rust Belt (vành đai rỉ sét), both of which used to be national champions and fuel incredible post-war economic growth. When globalization emerged, these once-glorious regions soon went downhill due to the rise of more cost-effective production chains in disadvantaged countries, one of which was China, and, to a lesser extent, Vietnam. The striking gap between minimum wages in China ($3.7 per hour in Beijing) and the US ($7.25) renders any mass production chains (which can exploit the benefits of economy-of-scale) in the US unprofitable compared with their Chinese counterparts. In other words, if an iPhone were to be produced on US soil, it would have to be priced much higher (as if it could be any more expensive lol), convincing Apple’s board of directors to steer to Asia-Pacific. Trump believes there would be no country without steel, and holds supply-chain dependence in high regard. However, as labor costs constitute a large share in the pricing of any products, it is virtually impossible for locally produced US goods to compete globally; and in his slightly mercantilist perspective (người theo chủ nghĩa trọng thương), the US is the biggest loser due to globalization (which his supporters, many of whom dwell in the cities and regions mentioned above, fervently agree with), while China is the crafty winner, who has deprived the US of jobs, exports. These essentially mean money in this former businessman’s point of view.
Hence, tariffs.
In practice, Vietnam is also imposing tariffs on China, as a measure to counter the dumping (bán phá giá) of galvanized steel (thép mạ) from its mighty neighbor to bolster domestic producers (Hoa Phat, Nam Long). China is globally renowned for its industrial overcapacity, enabling it to offer astonishingly bargain prices to overseas consumers. Such practice may stifle (bóp nghẹt) Vietnam’s domestic production, which prompted its preventive measure (thúc đẩy biện pháp phòng ngừa). On a side note, the EU recently was forced to draft new proposals for tackling China’s domination in electric vehicles, symbolized by the success of BYD, which poses genuine concern to even the normally haughty Elon Musk.
Another point we should delve into is his personality, characterized by his penchant (sự ưa thích) for being in the spotlight, be it for positive or negative reasons. He is fond of embellishing heroic stories on how he has forced others into submission and making compromises. In his first term, he declared a trade war on China, and proclaimed victory after China symbolically agreed to purchase more US goods in a memorandum (biên bản ghi nhớ) (which is not legally binding (ràng buộc pháp lý)) and buying nothing afterwards. In fact, Vietnam adopted the same strategy, which is perhaps the reason for his wrath (cơn cuồng nộ) (he did perceive Vietnamese as good negotiators in the video, in a somewhat ironic way).
How was the rate (46%) calculated?
This is indeed the most peculiar detail, as everyone wonders where his administration’s conviction that Vietnam currently imposes a 90% tariff on US goods came from.
In reality, his team took Vietnam’s exports value to the US in 2024 ($119b) and the reverse ($15 billion), that leaves us a 104 billion surplus for Vietnam.
In their view, this is how much Vietnam is exploiting them:
104/119 ~ 87.4%
Hence their reciprocal tariff.
Some common sense will tell anyone that this is entirely flawed, as when Nike or Apple manufactures their products in Vietnam and sells them in the US, that also counts in the export values. In other words, US corporations also export TO the US, and this account for a considerable share.
Implications for Vietnam and potential strategies
As an emerging export-driven country, Vietnam does not have many powerful tools except for diplomatic measures. Given Trump’s erratic behavior and desire to demonstrate (thể hiện trình) his negotiation (or coercion (cưỡng ép)) skills, a deal could be struck in the foreseeable future if Vietnam is willing to make some concessions (nhượng bộ), such as lowering tariffs on US goods, or pledging more purchases of US arms (which is not out of line with Vietnam’s non-alignment (không liên kết) status). If a more favorable rate is secured (preferably below India’s rate of 26%, or lower), Vietnam can retain its allure as a rising star of the global supply chain, despite some potential impediments to our growth target of 8% in 2025.
Another approach, while less likely to be taken, could be waiting for the fiasco ahead. US stock markets have tumbled since the announcement, and Wall Street is not well-known for patience. Some lobbying is reportedly under way at the moment, as JP Morgan Chase has raised the recession risk to 60%, while inflation will soon ensue as consumers will have to bear the costs of tariffs, forecast at 2%. If he does not play his Trump card right (pun intended), he may face irreversible alienation (sự xa rời) of his constituents (cử tri), with far-reaching implications as the 2026 mid-term election approaches. The shortcoming of this strategy is its uncertainty, as it is impossible to predict when the tides will turn, while the Vietnamese government also have to dispel unfavorable news to assure investors in order to curb the current state of hysteria (cơn cuồng loạn).
There are other lurking threats, including the erosion (xói mòn) of confidence in the US dollar, and China’s emergence as the champion of free trade, but they would become too technical. If you wish to learn more, tell me. :>
