Facing Trump tariffs, Vietnam eyes crackdown on some China trade

In hope of avoiding punishing U.S. tariffs, Vietnam is prepared to crack down on Chinese goods being shipped to the United States via its territory and will tighten controls on sensitive exports to China, according to a person familiar with the matter and a government document seen by Reuters.

The offer, the details of which are reported by Reuters for the first time, came as senior U.S. officials, including the influential White House trade advisor Peter Navarro, raised concerns about Chinese goods being sent to America with "Made in Vietnam" labels that draw lower duties.

Vietnam has for weeks been offering sweeteners that it hoped would persuade the U.S. President Donald Trump's administration to take a benign view of its huge trade surplus with America. Instead, it was hit with a 46% tariff as part of Trump's "Liberation Day" salvo.

While the tariff has been suspended for 90 days, the two countries agreed to start talks after a Vietnamese deputy prime minister met with the U.S. Trade Representative on Wednesday.

Export-reliant Vietnam is hoping to get the duties reduced to a range of 22% to 28%, if not lower, according to three people with knowledge of the matter.

One of them said that U.S. officials had signalled that range was likely, during a bilateral meeting in March.

Vietnam's trade ministry and the USTR's office did not return a request for comment.

In announcing the start of trade talks with the U.S. on Thursday, Vietnam's government said on its official portal it would crack down on "trade fraud." It did not provide specifics.

Since Trump's first term, many multi-national firms have implemented a "China plus one" policy of setting up factories in Vietnam to reduce exposure to Beijing.

The Southeast Asian nation is in a tight spot as it tries to preserve trade with the U.S., which is its largest export market and a security partner. At the same time, Hanoi does not want to antagonize China, which is a top source of investment as well as a neighbour with which it has clashed over boundaries in the South China Sea.

They've really taken advantage of our country for a long period of time.

Vietnam's Government Office, a body that coordinates between its ministries, held an emergency meeting with government trade experts on April 3, hours after Trump announced the tariffs. The aim was to address Washington's concerns over alleged intellectual property theft and transhipment abuses, according to a person briefed on the meeting.

At the meeting, trade ministry and customs officials were told to tighten controls and were given two weeks to devise a plan to clamp down on illicit transhipment. The deadline could be extended until late April, the person said, adding that Hanoi wanted to be careful not to provoke China.

Illicit transhipment refers to one country sending goods to a nation facing lower tariffs from a third country, to which the product is re-exported without having value added to it.

Vietnam's Government Office and the customs department did not respond to a request for comment.

Many of the goods exported by Vietnam to the West have Chinese-made inputs, and Chinese companies have also established factories in the country to serve U.S. customers.

In many instances, Vietnamese workers process the goods, which are then legally shipped to the U.S. under a "Made in Vietnam" label.

Official trade data show Vietnam's exports to the U.S. in recent years have been fuelled by imports from China, with inflows from Beijing closely matching the value and swings of exports to Washington.

Among U.S. top trading partners, Vietnam is the most exposed in terms of value of its exports to the United States as a share of its GDP

Among U.S. top trading partners, Vietnam is the most exposed in terms of value of its exports to the United States as a share of its GDP

U.S. officials have alleged, however, that China uses Vietnam as a conduit to obtain lower tariffs for goods that do not have significant Vietnamese involvement.

"China uses Vietnam to tranship to avoid the tariffs," Navarro said on Fox News on April 6, without providing evidence.

A person familiar with the matter said that in some instances, ships carrying Chinese-made goods dwelled in Vietnamese ports just long enough to obtain documents certifying that the products were made in Vietnam before leaving.

Reuters could not immediately establish if Vietnam's offer was enough to address U.S. concerns over abuse of transhipment or if the country could comprehensively tackle the problem.

A spokesperson for China's Foreign Ministry said in response to Reuters' question that trade between Beijing and Hanoi "is essentially a win-win situation. We believe that Vietnam will make a choice that is in line with its own long-term interests and the overall situation of mutually beneficial cooperation between China and Vietnam."

CHIPS, SATELLITES AND PLANES

Vietnam is also implementing tougher measures on sensitive goods that flow through its territory from the U.S. to China.

Hanoi intends to tighten controls around the export of dual-use goods like semiconductors, which can be used for both civilian and military purposes, according to a draft decree reviewed by Reuters.

The decree, which states it was prepared at the request of the trade ministry, was not dated but it includes an explanatory note dated April 4.

The document said that major trading partners had requested that Hanoi "minimize the possibility of these source technologies being transferred to third countries without the consent of the exporting country."

The U.S. government considers leadership on artificial intelligence as a national priority and Washington has moved to cut off China's access to the most advanced U.S.-made chips.

Vietnam now plans to introduce new declaration and approval procedures for the trade of such products, according to the proposal.

Hanoi previously said that it discussed controls over exports of dual-use goods with U.S. officials during meetings in March.

Other tech-related gestures directed at the U.S. include Hanoi's approval, under favourable conditions, for the Starlink satellite communication service controlled by Trump's billionaire ally Elon Musk.

Musk appeared to confirm Starlink's ambitions in the country when he reposted on April 4 the contents of an earlier Reuters article that detailed the company's plans for the deployment of multiple ground stations.

Musk's primacy in space is seen as a threat by Beijing, which is rushing to launch satellites into lower-earth orbit.

Vietnam, a medium-sized country whose diplomats have a long history of juggling ties with great powers, will host Chinese leader Xi Jinping next week.

Xi's trip is likely to coincide with Vietnam's aviation regulator approving China's COMAC planes, according to two people familiar with the matter.

That could open the way for the leasing and purchase by Vietnamese airlines of the Chinese jets, which have so far struggled to find foreign buyers.

The approval would follow this week's announcements by Vietnamese airlines of agreements on U.S. loans for the purchase of Boeing (BA.N) planes.