Why the Vietnam ‘detour’ for US-bound Chinese goods hit a dead end

Nearly a decade ago, one of China’s largest textile exporters concocted a plan to hedge against trade barriers championed by US President Donald Trump during his first term. Its owners were convinced that moving their primary production base from China’s east coast to Vietnam would be a permanent workaround – bypassing complex supply-chain pitfalls by hunkering down in a tariff lowland and continuing to stock Walmart shelves with socks and towels. Trying to get the jump on Trump in 2017, from Vietnam’s Hung Yen province, initially yielded high returns for Jasan Group in tariff savings. And the textile exporter watched as its peers back in China became embroiled in seemingly endless trade upheavals between Beijing and Washington. Then, in recent months, a dramatic turnaround upended the company’s strategy. Contracts were hastily cancelled amid a full investment retreat from Vietnam, according to reports by some state media outlets and business publications in China. The sudden reversal came after Jasan in September announced a fresh factory investment in Vietnam’s Thanh Hoa province, only to abandon the plan in February. The 180 million yuan (US$26.6 million) project was intended to churn out 60 million socks primed for the United States each year. In a Shanghai Stock Exchange filing, Jasan blamed delayed land acquisition and recent “uncertainties in operation and export prospects” for the pullback. Chinese exporters in Vietnam, many of whom sought to escape American tariffs by flocking to the Southeast Asian nation, are now discovering how quickly their fortunes can sour. Those who landed on Vietnam’s shores after the onset of Trump’s first trade war with China in 2018 reaped significant benefits in the years that followed while Beijing and Washington clashed. But more recently, chilled ties between the world’s two largest economies began to thaw – an outcome that has faced resistance from Congress and Trump’s own administration – while some trade probes and hostilities appear to have been redirected from Beijing to Hanoi. With Vietnam’s fate hanging in the balance amid several Section 301 investigations launched by the US, questions are gnawing at Chinese investors there: is the transshipment model to evade tariffs still viable? And if so, where to next? Trade observers are urging Chinese firms to rethink their bets and abandon any “opportunistic mentality”. As the popular Vietnam detour loses viability, firms are being told not to fool themselves into thinking they can find another country to continue the “China plus one” tariff-dodge tactic that had gained momentum upon Trump’s return to the White House. “Even if Vietnam’s relationship with the US remains unchanged, any uptick in ties between China and the US will chip away at Vietnam’s advantages, never mind the fact that the US may be cooking up a trade war against Vietnam,” said Zhou Libin, general manager of Tiansu Machinery and Technology, which is based in China’s Zhejiang province and has owned a plant in Vietnam’s Haiphong city since 2018. Zhou noted that the situation had become so grim in recent months that “it could be better off remaining in China”. Vietnam gets the ‘China treatment’ After surpassing China in January to accrue the largest trade surplus with the US, Vietnam is now on the receiving end of a Washington playbook once tailored to curb China. The shifting maths of tariffs has indeed narrowed the gap. Before a February ruling by the US Supreme Court invalidated certain measures, goods from China faced a combined 20 per cent levy – comprising “reciprocal” duties of 10 per cent and another 10 per cent in “fentanyl” tariffs. While Trump later reimposed a universal 15 per cent duty under Section 122, Vietnam’s baseline rate has fluctuated wildly. Section 122 of the Trade Act of 1974 allows temporary tariffs to address US balance-of-payments pressures, while a Section 301 investigation targets “unfair trade practices” by specific countries and can provide a legal basis for the US president to impose tariffs. Vietnam benefited tremendously when those investigations were largely directed at China. As China and the US were plunged into a trade war after Trump fired the opening volley in March 2018 via a Section 301 investigation into China’s intellectual property (IP) violations, what ensued featured tariffs, Chinese retaliation, talks and the collapse of talks. Some America-anchored Chinese manufacturers panicked, scrambling for a haven and landing in Vietnam in droves for its – back then – easier access to the American market. Information from Vietnam’s Ministry of Planning and Investment has also reflected a large amount of direct investment from Chinese firms in recent years. When the shift began, Zhou and others had no idea that the once-golden opportunity would vanish in just a few years, to the detriment of Vietnam’s manufacturing sector and economy. Although China was the primary lightning rod when Trump unleashed his barrage of so-called reciprocal levies in April 2025, Vietnam was not spared, being slapped with a steep 46 per cent duty, which was later slashed to 20 per cent – but with a catch. In the same executive order, Washington imposed a 40 per cent transshipment penalty on products composed primarily of foreign materials that receive only minor “screwdriver assembly” elsewhere to bypass trade restrictions. Though specific countries were not named, the measure was widely perceived as targeting Chinese goods shipped through Vietnam. “At that point, we began to fear there was no escape, even in Vietnam,” Zhou recalled. Now, Washington is deploying its most potent trade weapon: Section 301 probes into Vietnam’s IP protection, manufacturing capacity levels, and labour practices. Last month, Vietnam was identified as a priority country by the Office of the US Trade Representative for “persistent failure to resolve long-standing concerns about IP protection and enforcement”. These moves coincide with a surge in US-bound exports that saw a sharp rise in Vietnam’s first-quarter trade surplus with the US, exceeding that of China, according to official US figures. The great US-China thaw While Vietnam faces heat, China and the US are not currently crossing swords. Trade officials from Beijing and Washington have met multiple times since May 2025 to maintain engagement. Trump’s recent state visit to China – his first in nearly a decade – and his amicable exchanges with President Xi Jinping appeared to further thaw tensions and solidify a trade war truce. Both sides also agreed to establish trade and investment councils. Ties are generally expected to remain stable, with Xi set to pay a reciprocal visit to the US later this year. Meanwhile, the US moves against Vietnam have been met with angst and confusion, particularly among Chinese companies that have already been targeted. Jinko Solar, one of the world’s top makers of solar panels, tried last year to slash its US$1.5 billion investment in Vietnam’s Quang Ninh province to US$294 million, then ended up axing the entire project in February. The exit came after Jinko’s Vietnam subsidiary was accused by the US Department of Commerce of dumping and slapped with duties last year. “With tools like [Section] 301 probes, Washington is looking through the map now,” said Dan Martin, a Hanoi-based international business adviser with global consultancy Dezan Shira & Associates. “Vietnam, Thailand, Malaysia, Indonesia, India and Mexico can all come under scrutiny if they are seen as tariff detours rather than genuine production bases.” We may either return to China or find a country with low tariff advantages and a big local market Zhou Libin, Tiansu Machinery and Technology Rather than simply shifting production to a country just to change a product’s label, “the better strategy is geographic spread … and deeper local value creation”, Martin explained, noting that the pursuit of “cheap assembly alone is a liability”. “They should stop hunting for the next loophole,” he added. “The companies that come to Vietnam just to change the label on the box are walking into danger.” Meanwhile, he said, Hanoi was also rejiggering its strategy. Martin said he expected Vietnam to take action against perceived abuses by Chinese exporters “and present reforms as a national upgrade rather than a geopolitical loyalty test”. A new rule book, not a new Vietnam Many investors are already fretting over the potential for a July conclusion to the US Section 301 investigations, which could herald fresh tariffs. So, naturally, the looming deadline has prompted another scramble for the next haven. “We may either return to China or find a country with low tariff advantages and a big local market, like Indonesia,” said Zhou from Tiansu Machinery and Technology. However, some geopolitical analysts suggested Hanoi may fight to protect its industrial base. Manh-Hung Tran, head of Baker McKenzie’s IP and technology practice in the Asia-Pacific region, noted that Vietnam remained committed to a balanced-relations policy. Vietnam recognised that Chinese investments were essential to its economy and “will likely continue strengthening economic ties with both the US and China and remain receptive to investment from both countries”, Tran said. How Hanoi managed Washington’s grievances could ultimately determine the outcome for Chinese manufacturers anchored in Vietnam, Tran added. Go global, grow local As Chinese firms face mounting headwinds overseas, Beijing has stepped up regulatory scrutiny even as top leadership continues to endorse going global. This month, the State Council unveiled new rules on outbound investment. While stressing market principles and respect for host-country laws, the central government reaffirmed its support for firms competing in international markets. State media acknowledged that some Chinese enterprises possessed a limited understanding of foreign risk profiles and may be prone to rushed decision-making. The new rules are designed to offer more guidance on operational upgrades and localisation. “The State Council shall adjust outbound investment policies based on the changing situation and risks in foreign countries and strengthen monitoring, early warning and risk assessment,” an official reportedly said during a June 1 press conference. The new framework encourages Chinese firms to upgrade and localise overseas operations just as those in Vietnam face the difficult choice of staying or leaving. Carl Thayer, a Vietnam specialist and emeritus professor at the University of New South Wales in Australia, observed that a transition was already under way. “Some Chinese companies deepen vertical integration of manufacturing in Vietnam and source more local raw materials to comply with ‘rules of origin’,” Thayer said. He pointed to a move away from “shallow product re-routing” towards “more legitimate manufacturing integration”. To survive the new trade reality, Thayer said more Chinese enterprises would adopt strategies focused on “true globalisation”. This, he said, would include hiring local executives and professionals and shifting sales targets to non-US markets to dilute their exposure to Washington’s trade policy.

Why the Vietnam ‘detour’ for US-bound Chinese goods hit a dead end

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Is finding another Hanoi haven possible, or would trying be a fool’s errand for Chinese firms looking to get the jump on Trump and evade tariffs?

Is finding another Hanoi haven possible, or would trying be a fool’s errand for Chinese firms looking to get the jump on Trump and evade tariffs?