Kristina Roberts
The recent trade deal between the United States and Vietnam has left many retailers and clothing brands with more questions than answers. Companies like Nike and Adidas, which rely heavily on factories in Vietnam to make their shoes and clothes, are now unsure how this new agreement will affect their business. The deal includes a 20% tax on many goods imported from Vietnam, and an even higher 40% tax on products that are mostly made in China but shipped through Vietnam before reaching the U.S.
Vietnam is a major hub for making clothes and shoes, but many of the materials used in these products—like fabric, buttons, and zippers—come from China. This makes things complicated because it’s not yet clear whether items made in Vietnam using Chinese materials will be hit with the higher 40% tax. The U.S. government has strict rules against “transshipping,” which is when products made in one country are labeled as coming from another to avoid taxes. U.S. officials have already been watching for this, but now they are taking an even tougher stance.
Sheng Lu, a professor who studies fashion and clothing at the University of Delaware, said there is still a lot of confusion about the new rules. “Strictly speaking, transshipment is illegal, whereas using foreign components in compliance with rules of origin requirements is common practice,” said Lu. “Confusing these two distinct practices will only create greater uncertainty and risk further supply chain disruption.”
For years, many big brands have been moving their factories from China to Vietnam to avoid high taxes and other trade problems. But now, Vietnam itself is facing new taxes, which could make things difficult for these companies. Nike, for example, makes about half of its shoes in Vietnam, while Adidas produces around 27% of its products there. A Nike spokesperson said the company is still studying the details of the deal, while Adidas chose not to comment.
Lila Landis, an expert in trade rules, said this new tax could make companies think twice about using Vietnam as an alternative to China. “With this new change and with the potential for this transshipment tariff, I think it’s going to cause a lot of importers to really question, is Vietnam really a good other option?” said Landis. She also pointed out that the 40% tax could be added on top of existing taxes for Chinese goods, making the cost much higher.
Last year, the U.S. imported 274 million pairs of shoes from Vietnam, according to a group that represents shoe companies. They have called the new taxes unnecessary and warned that they will end up hurting American consumers by making products more expensive.
Joe Jurken, who works in supply chain management, said the new taxes might even push some companies to stay in China instead of moving to Vietnam. “There’s a lack of capacity in Vietnam because there’s not enough factories, and there’s an overabundance of capacity in China… so the Chinese factories, in our opinion, will benefit from this over the short term,” Jurken said.
Some experts, however, believe the situation could have been worse. The 20% tax is lower than what many feared, and the deal at least provides some clarity after months of uncertainty. Jim Kennemer, who helps companies find suppliers, said this might encourage some businesses to go ahead and place orders in Vietnam. Still, he admitted that avoiding Chinese materials completely is nearly impossible. “It’s going to be nearly impossible to get a 100% not-China supply chain,” he said.
The new trade deal has created a tricky situation for retailers and brands. While Vietnam has been a popular choice for companies trying to reduce their reliance on China, the new taxes could make things more complicated and expensive. Businesses will now have to carefully weigh their options and decide whether sticking with China, moving to Vietnam, or finding another solution is the best way forward.
For now, many questions remain unanswered, and companies will be watching closely to see how the new rules are enforced. The trade deal may have been meant to protect U.S. businesses, but it could also lead to higher prices for shoppers and more challenges for companies trying to keep their costs low. As the situation develops, retailers and brands will need to stay flexible and adapt to whatever changes come next.
The U.S.-Vietnam trade deal is just the latest example of how global trade policies can have a big impact on businesses and consumers. Whether it helps or hurts in the long run remains to be seen, but one thing is certain—companies will need to think carefully about where they make their products and how they navigate the changing rules of international trade.
