Trump Says the U.S. Has a Deal With Vietnam. Tariffs Start at 20%.

President Donald Trump speaking to reporters on the South Lawn before boarding Marine One and departing the White House on July 1. (Photo by Anna Moneymaker/Getty Images)

President Donald Trump on Wednesday announced a trade deal with Vietnam, opening its market to U.S. goods and agreeing to 20% tariffs on most exports to the U.S. The news comes just hours after he said Japan is unlikely to secure a deal with the U.S. and threatened to increase tariffs on goods from the country.

Vietnam has emerged as a exporting hub, drawing companies looking for cheaper labor and an alternative to manufacturing in China. Its export dependence, though, meant Vietnam needed a deal. While the 20% tariffs on most of its exports to the U.S. is double the 10% currently in place it amounts to less than half the 46% the Trump administration threatened in April.

Mary Lovely, senior fellow at the Peterson Institute for International Economics, says Vietnam can still stay competitive at 20% tariffs as long as rival China’s exports face tariffs of 30% or more, as is the case now. Plus, she adds, the sting of these tariffs will fall not on the Vietnamese but the retailers using it as a production hub and the consumers buying those goods.

The U.S. also levied a 40% tariff on any goods that were “transshipped,” addressing the administration’s concerns that China is re-routing its goods to evade tariffs.

While Chinese companies have increasingly invested to build production in Vietnam, Lovely says the amount of actual transshipping—where it is largely about relabeling products— is overestimated. Enforcing this element of the agreement could also be difficult, she adds.

Trump also heralded U.S. access to Vietnam’s markets tariff-free—something Lovely described as not a heavy lift as U.S. exports don’t present a competitive threat to domestic manufacturers and many U.S. products are too expensive for Vietnamese consumers.

The takeaway for those looking for signs of what this means as the July 9 deadline for the April tariffs to resume is that higher tariffs are here to stay, even if they don’t return to the levels threatened April 2.

It’s possible other southeast Asian countries that the administration is critical of for transshipping, including Thailand, the Philippines, and Malaysia, could also see higher tariffs in coming days.

The deal with Vietnam offered a counter to Trump’s comments related to Japan, which he threatened on Tuesday with a tariff rate of “30%, 35% or whatever the number is that we determine.” This is higher than the 24% initially set for the country when widespread tariffs were announced on April 2. Trump also told reporters that he wasn’t sure the U.S. was going to make a deal with Japan, calling them “very tough.” That followed a social media post on Monday that cited rice as a sticking point in negotiations.

Japanese officials have said they won’t agree to any arrangement that keeps the 25% import duty on cars—the country’s biggest export to the U.S. Negotiations with the world’s fourth-biggest economy are showing just how tricky resetting the rules of trade can be.

“Japan is different from other countries as we are the largest investor in the United States, creating jobs,” Reuters reported Prime Minister Shigeru Ishiba as saying on Wednesday.

Trade veterans and political consultants in Washington, D.C., note that sectoral tariffs—like those in place on aluminum, steel, and the auto tariffs at issue with Japan, plus those still looming on semiconductors, pharmaceuticals, and other industries—are a hurdle in negotiations.

Analysts expected at least one trading partner to be used as an example and to get the “stick” so that the U.S. would still have some leverage in other negotiations. “Japan has taken the spot of the European Union as the most likely major U.S. trading partner to end up with higher tariffs after the 90-day pause ends next week,” said Owen Tedford, a senior research analyst at Beacon Policy Advisors.

It could be a different story for India. Trump told reporters aboard Air Force One that he believed India was ready to lower barriers for U.S. companies, according to a Reuters report. This could lead to an agreement to lower the 26% rate he announced for the nation in April.

“I think we are going to have a deal with India. And that is going to be a different kind of a deal. It is going to be a deal where we are able to go in and compete. Right now, India does not accept anybody in. I think India is going to do that, and if they do that, we are going to have a deal for much less tariffs,” Trump said.

Write to Reshma Kapadia at reshma.kapadia@barrons.com and Brian Swint at brian.swint@barrons.com