Vietnam and the US sign a customs agreement

Exports to the US are crucial to the Vietnamese economy. That is perhaps why the Asian country has agreed to a tariff deal. However, there is no optimism in Hanoi.

The CNBC presenter looks visibly excited: according to her, this is the most important and surprising news of the day: "The US president has announced that an agreement has been reached with Vietnam: 20% tariffs will be applied to Vietnamese imports to the US."

The Southeast Asian country is thus one of the first to reach an agreement in the tariff dispute with the US. President Donald Trump had initially threatened much higher tariffs, specifically 46%. In exchange, Vietnam has agreed to eliminate all tariffs on American imports into the country, according to US Deputy Secretary of the Treasury, Michael Faulkender: "This is a huge success for Americans, for farmers. We have opened the Vietnamese market like never before."

Some 14,000 kilometers from Washington, Peter Kompalla is in his office in Ho Chi Minh City, Vietnam. He is the so-called "delegate of German business in Vietnam" for the German Chamber of Foreign Trade (AHK). According to him, there is no great euphoria in Vietnam after the announcement of the agreement.

"And that surprised me; it's not even the main topic in the media." The government issued a fairly objective statement. "Positive and objective," according to Kompalla. The Vietnamese side is pleased with the result because there is clarity. "But there is no celebration here."

Dependence on exports to the US

This at a time when Vietnam is heavily dependent on the US: about 30% of its gross domestic product last year came from exports to the US. Textiles, footwear and furniture are the most important export products and millions of Vietnamese workers are employed in these sectors.

Many international companies such as Samsung, Adidas and Nike, as well as Chinese companies, shifted a large part of their production to Vietnam during Trump's first term to avoid US tariffs on China.

Many details of the agreement are still unclear.

According to Peter Kompalas of the German Chamber of Commerce in Vietnam, the details of the actual agreement are yet to be seen. Trump also announced that a 40% tariff will be applied to freight products - that is, products from third countries, such as China, that arrive in the US via Vietnam.

"And that's the big question: how exactly is this technically defined? How is it defined? What is freight now and what are the products that are actually manufactured here?" Because Vietnam is a trading country and relies on imports, including from China.

Very few companies operating globally have 100% of their production in Vietnam, including pre-products, full processing and all other services. Therefore, companies now face the question: will their products be subject to a 40% tariff when exported to the US because, for example, some parts come from China?

Resistance expected from China

For Shawn Donnan, an economics expert at Bloomberg News, the interesting question is: how will China react? On the podcast of the American business news agency, he said: "We could soon see agreements with countries like Thailand, Indonesia, Japan or South Korea." According to Donnan, their contracts could include similar provisions specifically aimed at China. "This would further isolate the Chinese economy. It would hurt the Chinese people. So China will resist."

The coming weeks will reveal who is right. Faulkender, the US deputy treasury secretary, told CNBC that he expects a series of tariff agreements with other countries no later than next week./ DW