China the elephant in the US-Vietnam trade-talk room

Once ravaged by war, Vietnam has become a manufacturing powerhouse and one of the United States’ top ten exporters. Yet despite its transformation, the country is now facing one of its biggest economic and diplomatic tests: how to remain a key export hub while distancing itself from China, its largest supplier and longtime geopolitical rival.

At the center of this dilemma is President Donald Trump’s proposed 46 per cent tariff on Vietnamese goods, which could upend Vietnam’s export-led economy. The Trump administration accuses Vietnam of serving as a transshipment hub for Chinese goods, enabling companies to dodge steep tariffs on Chinese imports. While some of that rerouting is legal supply-chain migration, the US is pressuring Hanoi to prove that its exports are genuinely Vietnamese.

In recent weeks, Vietnamese officials have scrambled to negotiate a deal before the 90-day tariff reprieve expires in early July. Talks resumed in Washington this month, with both sides working to address American concerns over trade fraud and the re-labelling of Chinese goods.

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The pressure shows Vietnam’s growing reliance on Chinese inputs. Chinese firms such as Shein and Alibaba are heavily present in Vietnam’s southern industrial parks, packing and processing goods destined for the US As factories rush to hire workers to meet demand, concerns mount over the legitimacy of origin claims for many of these products.

“China is Vietnam’s biggest intermediate goods supplier,” New York Times quoted Priyanka Kishore, founder of Asia Decoded, a consulting firm based in Singapore, as saying. “If exports to the US are rising, it makes sense that imports from China are rising too.”

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Vietnam has responded by forming a special task force to crack down on smuggling and false labeling. The Finance Ministry has also met with US Customs and Border Protection to strengthen enforcement. But U.S. officials say it’s not enough.

Peter Navarro, one of Trump’s top trade advisers, called Vietnam “a colony of China,” reflecting Washington’s growing skepticism. While the rhetoric has alarmed Vietnamese leaders, they’ve also tried to sweeten the deal— offering to buy American goods, from Boeing aircraft to agricultural products. Eric Trump recently broke ground on a Trump-branded resort in Vietnam, a sign of warming ties amid tough negotiations.

Still, the structural challenge remains. Vietnam’s economic boom has been fueled by foreign investment and cheap labor, but it now faces rising wages, aging demographics, and environmental degradation. Its electronics and apparel industries are especially exposed—Vietnam imports around 60% of its textile inputs from China, according to Tran Nhu Tung of the Vietnam Textile and Apparel Association.

‘Without China, we cannot make products,” he said. “And without the US, we cannot export the finished goods."

At the helm of this moment is To Lam, Vietnam’s new Communist Party chief and former security official. He has launched sweeping bureaucratic reforms, laid off 100,000 civil servants, and declared an “era of national rise,” promising double-digit growth by 2030 and $100 billion in semiconductor exports by 2050. But experts say real success will depend on overhauling Vietnam’s outdated economic model, one dominated by inefficient state-owned enterprises and politically connected conglomerates, The Economist reported.

To build resilience, Lam is being urged to simplify business licensing, liberalise credit for small firms, and reduce dependence on China without alienating it. But such changes will make enemies, especially within the entrenched political elite.