How a clause in the US-Vietnam trade deal could upend Asia’s supply chains

The United States announced it had reached a trade deal with Vietnam on Wednesday, which will see Washington impose a 20 per cent tariff on Vietnamese goods.

Businesses in Vietnam’s vast export sector initially reacted with relief to the news, as the 20 per cent rate is substantially lower than the 46 per cent so-called “reciprocal” tariff that the US threatened to impose on Vietnam in April.

However, the agreement has a sting in the tail. US President Donald Trump also said in a social post announcing the deal that goods deemed to be transshipped via Vietnam would face a far higher levy of 40 per cent.

It remains unclear exactly how the transshipment clause will work in practice, but analysts said the provision could have far-reaching implications – not only for Vietnam, but also for the wider region.

What is transshipment, and why is the US so concerned about it?

In its purest form, transshipment refers to exporters evading tariffs by diverting goods via a third country.