May 8, 2025
The overwhelming number of questions from the audience underscores the high level of engagement and the relevance of the workshop's topics. While we regret that time constraints prevent us from addressing every query, we've meticulously reviewed and selected the most common and valuable questions for the broader group. For further inquiries, please contact our teams at info@kpmg.com.vn (Vietnam) and info@kpmg.com.kh (Cambodia).
Vietnam's Strategic Response to U.S. Trade and Tariff Policies
The Vietnamese government has been proactive in addressing the challenges posed by new U.S. trade and tariff policies. With a multifaceted approach that includes diplomatic negotiations, economic adjustments, strategic requests, and domestic measures, Vietnam aims to mitigate the negative impacts and foster a stable trade relationship with the United States.
Diplomatic Engagement and Negotiations
Vietnam has initiated formal negotiations with the U.S. to address countervailing tariffs. The first session of these talks was scheduled for May 7, 2025. The Vietnamese government is emphasizing a strategy of "harmonized benefits, shared risks" to ensure that both countries can find mutually beneficial solutions. This diplomatic engagement is crucial for maintaining a constructive dialogue and preventing further escalation of trade tensions.
Economic and Policy Adjustments
To balance trade and address the concerns of the U.S., Vietnam has pledged to increase its purchases of American goods, including liquefied natural gas (LNG) and aircraft. This move is designed to reduce the trade surplus and demonstrate Vietnam's commitment to a fair trading relationship. Additionally, Vietnam is taking stringent measures to crack down on transshipment fraud, particularly the rerouting of Chinese goods through Vietnam to avoid U.S. tariffs. This effort aims to enhance the integrity of Vietnamese exports and comply with international trade regulations.
Strategic Requests to the U.S.
Vietnam is seeking early recognition as a market economy, which would provide significant advantages in trade relations and reduce the likelihood of anti-dumping measures. Furthermore, Vietnam is requesting the removal of restrictions on high-tech U.S. exports to Vietnam. These strategic requests are aimed at fostering a more balanced and equitable trade environment, benefiting both countries.
Domestic Measures
On the domestic front, the Vietnamese government is streamlining its administrative structure to improve efficiency and reduce bureaucratic hurdles. This includes promoting high-tech industries such as semiconductors and microchips, which are critical for the country's economic modernization and competitiveness. By focusing on these high-value sectors, Vietnam aims to diversify its export base and reduce its vulnerability to external trade shocks.
Anticipated Tariffs and Their Implications
As of early May 2025, the United States announced a 46%, and 49% reciprocal tariffs on Vietnamese import, and Cambodian imports respectively. However, the implementation of this tariff has been delayed until July 2025 to allow for ongoing negotiations. If these negotiations fail, the tariff will take effect, significantly impacting Vietnamese/ Cambodian exports to the U.S., particularly in sectors such as apparel, footwear, electronics, and furniture.
What to Expect After June 2025
If no agreement is reached, the reciprocal tariffs will be implemented in July, leading to higher landed costs for Vietnamese/ Cambodian goods in the U.S. market. This will likely result in supply chain disruptions and force companies to re-evaluate their sourcing strategies. Businesses should prepare for potential impacts by considering repricing and margin adjustments, conducting customs compliance reviews, and exploring alternative markets or production bases.
Implications for Businesses
Businesses need to be proactive in preparing for the potential impacts of the tariffs. Key strategies include:
Exploring Alternate Markets or Production Bases: Diversifying markets and considering alternative production locations can help mitigate the risks associated with the tariffs.
Question 3. Please can you explain the tariff stacking?
Tariff stacking refers to the simultaneous application of multiple tariffs on a single commodity. This methodology can result in cumulative tariffs, significantly increasing the overall cost of imported goods.
Different types of tariffs, such as antidumping duties, countervailing duties, and Section 232 tariffs, can be applied together.
Tariffs are applied in a specific order, often starting with the most general tariffs and then adding more specific one.
Importers must carefully review classifications to ensure proper application of tariffs and avoid excessive duties.
Multiple Tariffs:
Multiple Tariffs:Different types of tariffs, such as antidumping duties, countervailing duties, and Section 232 tariffs, can be applied together.
Hierarchy of Application:
Hierarchy of Application:Tariffs are applied in a specific order, often starting with the most general tariffs and then adding more specific one.
Impact on Importers:
Impact on Importers:Importers must carefully review classifications to ensure proper application of tariffs and avoid excessive duties.
Example:
For instance, if a commodity is subject to Section 232 tariffs on steel, it might also face additional tariffs under antidumping measures if imported from a country suspected of selling below market value.
Non-Stacking Principle:
Recent executive orders have aimed to prevent the cumulative application of tariffs under the same provisions, ensuring that an article subject to one type of tariff isn't subjected to additional tariffs from the same order.
Why It Matters:
Understanding tariff stacking is crucial for businesses to navigate international trade efficiently and mitigate potential financial burdens:
• Accurately assess landed costs.
• Avoid supply chain inefficiencies.
• Evaluate competitiveness and the real impact of trade policies.
Question 4. How does the U.S reciprocal tariffs impact on Vietnamese exporters in Footwears & Apparel to US? How to minimize the potential impacts?
Impact of U.S. Reciprocal Tariffs on Vietnamese Footwear and Apparel Exporters
The imposition of a 46% reciprocal tariff by the United States on Vietnamese exports, including footwear and apparel, has created significant challenges for Vietnamese exporters. This sharp increase in tariffs, effective from April 2025, raises the total effective duty on textiles and garments. The substantial hike in tariffs has severely impacted the price competitiveness of Vietnamese products in the U.S. market, leading to concerns about order cancellations, profit margin erosion, and supply chain disruptions.
Explore alternative export markets under FTAs.
Invest in branding and quality to justify higher prices.
Localize or regionalize to reduce tariff exposure.
Improve traceability to meet U.S. standards.
Streamline operations, automate, and reduce overheads.
Collaborate with U.S. firms to bypass tariffs.
The increased tariffs have drastically reduced price competitiveness in the U.S. market.
Rising cancellations from U.S. buyers unwilling to absorb costs.
Exporters face reduced profitability amid higher costs.
Tariffs have disrupted sourcing and logistics strategies.
Question 5. What is the impact of the Trump tax in Cambodia? What is the forecast for the Cambodian market, especially for Moto and Auto? Are there risks of anti-dumping, countervailing duties, or quotas on steel imports from Cambodia?
Impact of the Trump Tariff on Cambodian Exporters
The U.S. has imposed reciprocal tariffs of up to 49% on Cambodian exports as of April 2025. This move was driven by Cambodia's large trade surplus with the U.S. and its heavy reliance on the U.S. market, which accounts for a significant portion of Cambodia's total exports. Key affected sectors include garments and footwear, leather goods, furniture, and automotive components and accessories.
Forecast for Cambodia’s Motorcycle and Automobile Market
• Domestic Demand: Domestic demand for motorcycles and small vehicles remains resilient, driven by urbanization, rising middle-class income, and infrastructure development.
• Export-Oriented Auto Parts: Export-oriented auto parts and accessories face significant headwinds due to tariff-induced price hikes and potential order cancellations from U.S. buyers. Market volatility is expected through late 2025 and early 2026, with growth possible if Cambodia can diversify export markets and upgrade local production capabilities.
• Risks of Anti-Dumping, Countervailing Duties, or Quotas on Steel
While no formal U.S. trade remedy actions have been announced against Cambodian steel as of May 2025, the risk is rising due to increased scrutiny of transshipment practices, Cambodia's growing steel re-export volumes, and U.S. emphasis on origin verification and enforcement. If evidence of unfair pricing or subsidies emerges, Cambodia could face anti-dumping duties (ADD), countervailing duties (CVD), import quotas, or licensing requirements.
To avoid transshipment allegations, exporters should ensure robust documentation and traceability systems.
Exploring markets beyond the U.S., such as the EU, ASEAN, and the Middle East, can reduce reliance on the U.S. market.
Negotiating tariff relief or exemptions through diplomatic channels can provide some respite.
Meeting U.S. customs standards is crucial for smooth trade operations.
Preparing legal defenses and staying informed about ongoing investigations can help mitigate risks.
Question 6. Should companies now shift all remaining production out of China to Vietnam on the consideration that the China punitive rate will be higher for longer, and how they are dealing with the country of origin issue?
Challenges
With the U.S. imposing historically high tariffs on Chinese goods, many companies are contemplating shifting their production from China to Vietnam. This strategic move is driven by several factors, including tariff pressure, rising costs in China, and geopolitical risks. However, this transition also brings significant compliance challenges, particularly regarding country of origin rules.
Country of Origin Compliance: The Critical Challenge
As companies shift production to Vietnam, compliance with country of origin rules becomes a critical issue. Ensuring that products meet the substantial transformation criteria is essential to qualify for Vietnamese origin and avoid penalties.
The imposition of reciprocal tariffs by the U.S. has created significant challenges for Vietnamese and Cambodian exporters. By adopting strategic measures such as market diversification, product value enhancement, supply chain restructuring, compliance improvement, and cost optimization, exporters can mitigate the impacts and navigate the complex trade environment. Proactive engagement in trade diplomacy and investment in compliance systems are essential for long-term success in the face of evolving tariff policies.
Shifting production from China to Vietnam/ Cambodia presents both opportunities and challenges. While Vietnam offers lower tariffs, labor costs, and improved infrastructure, compliance with country of origin rules is critical. By adopting strategic measures and ensuring robust compliance, companies can successfully navigate the complexities of relocating production and maintain their competitiveness in the global market.
