Vietnam has emerged as a big competitor in American market in electronics components
By Subrata Majumder
Concerns loomed large, when the basic reciprocal tariff on imports from Vietnam to USA was drastically cut by Trump administration on July 9, 2025 from 45 percent to 20 percent, leaving India in a major setback. This is lower than import tariff from India, which will fetch 26 percent reciprocal tariff in USA, according to Trump’s announcement on April 2, 2025.
But there is a catch. Trump administration imposed high reciprocal tariff of 40 percent on transshipment of goods from Vietnam. China plays a significant role in transshipping goods through Vietnam. Transshipping is narrowly defined as Chinese products imported into the country solely for relabeling and reexporting to the U.S. market without significant value added. It is often done to disguise a product’s country-of-origin rule in order to illegally avoid import levies.
China attracts 55 percent tariff in US market, according to US Commerce secretary Howard Lutnick. It includes worldwide Baseline tariff of 10 percent, 20 percent “Fentanyl” tariff from March 4, 2025 and 25 percent tariff under USA Section 301 since Trump’s first term as US President.
While a precise ratio of transshipment of Chinese goods exported to USA via Vietnam is not clear, China plays a significant role. China is the biggest exporter to Vietnam, accounting for nearly 33 percent of Vietnam’s total import. It holds bigger stakes in supply chain of inputs in Vietnam’s finished products, like electrical and electronic equipments, apparels, pharmaceuticals and machinery and equipments, that are exported to USA.
The noteworthy feature of Vietnam’s sudden surge in export to USA is the trigger in exports of electrical and electronic equipments and components. They are the biggest items in export basket of Vietnam. They accounted for nearly one-third of Vietnam’s export to USA in 2024 (29.9 percent).
Given the significance of electrical and electronic items export to USA, where China plays a significant role in supply chain to Vietnam, it demonstrates a signal of disguise between inputs and transshipment.
Similarly, dicey situation hovers on Vietnam’s exports of apparels to USA. China and Vietnam are the major exporters of apparels to USA. Nevertheless, China’ exports showed a downtrend recently. Vietnam emerged the biggest exporter of garment to USA in 2024. Nearly, 42.2 percent of US imports of apparels was generated from Vietnam in 2024.
A substantial portion of apparel production in Vietnam relies on imported textile materials from China. Here also, the ambiguity between input and transshipment cannot be ruled out.
Vietnam has tripled its exports to USA since the start of USA-China trade war in 2018, which led multiple tariff on China by Trump’s first administration.
To bolster its exports through Vietnam, China emerged a significant foreign investor in Vietnam since the USA-China trade war. It is the 3rd biggest foreign investor in Vietnam, after Singapore and South Korea. While debilitating the real purpose for investment, China’s investment in Vietnam surged to disguise and evade high tariff in USA. This involved setting up operation in Vietnam, performing minimum processing of Chinese goods and then exporting to USA under Vietnam label to avoid high tariff.
According to Provincial Competitive Index of Vietnam, Chinese investment in Vietnam surged from US $ 2.92 billion in 2021 to US$ 4.47 billion in 2023, a leap by 53 percent.
Given these under-cover trade and investment practices between Vietnam and China, it is extrapolated that there are close and hidden relations between inputs supplied and transshipment by China, which catapult Vietnam exports to USA. These can be sorted out by US policy for segregation for imposing different rates of tariff.
To this end, India stands for an edge over Vietnam, in the wake of USA’s mounting pressure on strict vigilance on transshipment by China.
Having USA’s high tariff on transshipment, India has advantage in edging out Vietnam in exporting to USA. According to global analysts, India has a better manufacturing capability and larger pool of skilled workers in the sectors like electronics and electrical equipments and components and apparels. India has larger pool of engineers, embracing robust basket of IT engineers in the industries like aerospace and electronics and skilled workers in the apparels, especially casual wears, which helped it to make a larger stake in the global market. .
India also stands for better relations with USA in terms of foreign direct investment (FDI) . USA is the 3rd biggest foreign investor in India. The biggest share of US FDI in India is in computer, including its peripherals and software. They accounts for nearly 44 percent of total FDI in India.
While the main aim of US FDI in India is to procure low cost IT services, Vietnam emerged hotbed for China for manipulation of manufacturing to evade high tariff in USA. (IPA Service)
