Trump tariffs: Can Vietnam golf its way out of new US import taxes?

Countries around the globe are bracing themselves for what former U.S. President Donald Trump has dubbed "American Liberation Day!!!" next week. The deadline set by Trump for imposing reciprocal tariffs on trade partners will arrive just days after his proposed 25% import tax on foreign automakers. This series of actions has sparked widespread concern within the international community.

Vietnam may be particularly vulnerable to Trump's latest round of tariffs. Vietnam has a significant trade surplus with the U.S. and has benefited from companies moving factories out of China to circumvent measures announced during Trump's first term. This means that the economic lifeline of Vietnam could be directly impacted by Trump's policies.

While some countries have already taken retaliatory measures against Washington, Vietnamese Prime Minister Pham Minh Chinh has hinted that he might take a more diplomatic approach. In January, he said he would be willing to visit Trump's Mar-a-Lago estate in Florida and "play a round of golf all day" if it was "beneficial" to his country, a remark that drew laughter. This gesture suggests Vietnam is attempting to ease trade tensions through personal relationships.

Trump has previously stated that Vietnam is "worse than China" and "almost the worst abuser of all." However, he has not specifically targeted Vietnam with tariffs, even though Vietnam has the third-largest trade surplus with the U.S., behind only China and Mexico. Analysts believe that Vietnam has been managing its engagement with Washington well, but its efforts may still not be enough to avoid the bulk of Trump's tariff plans. "The Vietnamese prime minister seems to be emulating what (former Japanese Prime Minister) Shinzo Abe did, who developed a close personal relationship with Trump through their shared love of golf," said Stephen Olson, a former U.S. trade negotiator. "But I don't expect Vietnam to get any special treatment from a policy perspective. Personal relationships are important to Trump, but in this case, I believe his desire to appear tough on trade will win out."

Vietnam has stated that it does not intend to "limit trade with the U.S.," even though it currently taxes some imports from the U.S. The Vietnamese government said this week that it would allow SpaceX, owned by Trump's close ally Elon Musk, to trial its Starlink satellite internet service in the country. Some analysts believe this is one of the measures Vietnam is taking to avoid being hit by U.S. tariffs. Hanoi has also said it will lower tariffs on several U.S. imports, including energy and automobiles, in a move designed to "improve trade balance." This move comes less than two weeks after Vietnamese and U.S. companies signed agreements worth more than $4 billion (£5.4 billion) in areas such as oil and gas exploration. "Vietnam is being very careful to avoid any moves that would signal a lack of cooperation on trade issues," said Steve Norris of Control Risks consultancy. This strategy aligns with its diplomatic approach—known as "bamboo diplomacy." Like plant branches swaying in the wind, Vietnam hopes to be able to adapt to foreign pressures. Mr. Norris said: "If the U.S. increases pressure on Vietnam, the Vietnamese government may propose promoting investment in the hotel and casino industry, procuring advanced machinery, and—seizing the opportunity—considering opening up Vietnam's rare earth minerals."

A significant factor working against Vietnam is concern over Chinese influence. During Trump's first term, Vietnam was one of the biggest beneficiaries of U.S.-China tensions. In 2018, Trump imposed tariffs on China, leading some businesses to reconsider where they produced their goods. Some companies chose to move manufacturing to Vietnam. This led to an increase in Vietnam's exports to the U.S., and Chinese companies shifting production there also contributed to this figure. Wendy Cutler, a former U.S. trade negotiator, said that Vietnam has become "a major destination for Chinese investment." While the U.S. remains Vietnam's largest export market, China is its largest supplier of goods, accounting for more than a third of total imports, according to the latest official figures. Last year, Chinese businesses also accounted for nearly a third of new investment in Vietnam. "These are all huge red flags for Trump. I expect Vietnam will be hit hard by tariffs sooner or later," Olson said. However, imposing tariffs on Vietnam could affect American businesses like Apple, Intel, and sportswear giant Nike, which have shifted production lines from China to Vietnam. A recent survey by the American Chamber of Commerce in Vietnam found that most U.S. manufacturers there expect to cut jobs if tariffs are imposed. The U.S. President believes that imposing tariffs will encourage more businesses to produce goods in the U.S. and generate billions of dollars in tax revenue, thereby boosting the American economy. But many economists warn that this could force prices up for American consumers and negatively impact global trade.

Washington is also concerned about so-called "transshipment"—Chinese goods passing through Vietnam en route to other countries. Norris said that U.S. officials have been "quietly emphasizing to Vietnam that it must reduce its trade surplus over time and crack down on Chinese goods being transshipped through the country." The Vietnamese Prime Minister has said he is confident that his government can "manage relations with the U.S." Now, the Southeast Asian country has lowered tariffs on some U.S. goods that may be more attractive to Vietnamese consumers, thereby increasing the U.S. share of trade in the country. There's also golf—playing a round with Trump worked for the late Japanese leader Shinzo Abe. Abe and Trump forged a friendship that included many rounds of golf over the years. Arguably, that friendship helped Abe secure tariff exemptions for Japan's crucial automobile industry. At present, it is unclear whether Vietnam will actually try golf diplomacy. The real test will come next week when Trump's new batch of taxes goes into effect.