Donald Trump’s tariff wars: US announces trade deal with Vietnam; is India next? Why China should be worried

US President Donald Trump’s trade policies, tariff wars, and moves to seal trade deals with major trading partners in Asia and Europe has China increasingly on the guard - and rightly so! These trade deals could potentially separate Chinese companies from global supply networks, despite the recently announced trade truce between the US and China.US officials are actively negotiating with key trading allies in Asia and Europe before July 9, seeking arrangements that could limit Chinese involvement and address what the US considers unfair trade practices by China.The temporary 90-day suspension by Trump on what he termed "reciprocal" tariffs affecting many US trading partners concludes on July 9. These countries risk facing substantially higher tariffs if they fail to establish trade agreements with the US.Many countries are taking steps to maintain positive relations with Washington. Since Trump's tariff announcement in April, Vietnam, Thailand and South Korea have implemented regulations to prevent product rerouting through their territories to the US.Also Read | What is Donald Trump’s net worth? Billionaire US President has a big portfolio of cryptocurrencies, stocks & more - top detailsSouth Korean authorities have intensified their efforts against transshipments, noting an increase in such activities. Taiwan's President Lai Ching-te addressed this concern and subsequently introduced regulations requiring all US-destined exports to include legal certification of their Taiwanese origin.

How US Trade Deal With Vietnam Will Hit China

President Donald Trump announced on Wednesday a new tariff structure with Vietnam, marking the first such arrangement. According to Trump's social media announcement, Vietnamese exports to the US will face a 20% tariff, while goods identified as being transshipped through the country will incur a 40% charge.This arrangement will affect products containing Chinese components that are either minimally processed in Vietnam or simply routed through the country before reaching the US.

This structure reflects similar provisions found in existing US trade agreements with Mexico and Canada.The complete details of the agreement remain undisclosed by the White House, with some aspects possibly still under development. The impact on China's increasing exports to Vietnam is yet to be determined. China's Ministry of Commerce has not yet provided a response to enquiries.India, which is reportedly close to finalising a deal, is discussing "rules of origin" requirements.

The US is seeking a minimum of 60% local value addition for products to qualify as "Made in India" and receive benefits under the agreement. According to Bloomberg News, India is attempting to negotiate this requirement down to approximately 35%.

World’s Trading Dilemma & China’s Warning

The trade war predicament facing Asia centres on its dual reliance: needing US consumer markets while depending on Chinese manufacturing inputs, according to Alicia Garcia Herrero, Asia-Pacific chief economist at Natixis SA.

According to the Bloomberg report, in her recent analysis, she highlighted that Vietnam, Cambodia and Taiwan face particularly high exposure to this situation.Also Read | From ‘dead’ to ‘hottest in world’: Donald Trump calls ‘Big, Beautiful Bill’ the path to US making a ‘fortune’; says America growing out of ‘Biden mess’For most Asian economies, China represents a more significant trading relationship than the United States. Beijing has issued stern warnings about protecting its interests, with Foreign Minister Wang Yi expected to emphasise this position during his upcoming European diplomatic mission to Brussels, Germany and France."China firmly opposes any party reaching a deal at the expense of Chinese interests in exchange for so-called tariff reductions," said the Ministry of Commerce on Saturday, reiterating previous cautions. "If this happens, China will never accept it and will resolutely counter it to safeguard its legitimate rights and interests."According to Bloomberg Economics, Vietnam's trade agreement could trigger retaliatory measures from China."Beijing has signalled its intention to address arrangements that undermined Chinese interests, and the acceptance of increased tariffs on products 'transshipped' through Vietnam could be considered such a case," Bloomberg's Rana Sajedi noted in a research analysis.

Challenge for China & Its Worry

The United States' potential influence on other nations to strengthen or implement export restrictions on advanced technology poses a significant challenge for Beijing, particularly regarding its acquisition of essential semiconductor manufacturing equipment.In June, Taiwan expanded its restricted entities catalogue to include both Huawei Technologies Co. and Semiconductor Manufacturing International Corp., requiring Taiwanese companies to obtain governmental clearance before engaging in business transactions with these firms.The situation extends beyond Asian borders. Europe faces its own complexities in this matter. China's electric vehicle exports predominantly flow to the EU, whilst Chinese investments in the EU and UK reached 10 billion euros ($12 billion) in the previous year, as documented by Rhodium Group.Also Read | US plans ‘economic bunker buster’ bill: Will Donald Trump impose 500% tariff on countries importing oil from Russia? How it may impact IndiaHowever, commercial relations are becoming strained. European Commission President Ursula von der Leyen has recently criticised Beijing for its approach to rare earths and magnets, whilst highlighting concerns about Chinese industrial surplus.The European Union's potential agreement with the US has raised significant concerns in Beijing, particularly regarding provisions similar to those in the British-American deal, which encompassed supply chain security, export regulations and ownership guidelines for industries including steel, aluminium and pharmaceuticals.

Although China was not explicitly mentioned, Beijing issued an unusual public critique of the agreement, viewing it as a direct challenge, according to the Financial Times."China is clearly worried that the EU will accept the same wording as the UK did on export controls," said Joerg Wuttke, a partner at the Albright Stonebridge Group in Washington and former president of the EU Chamber of Commerce in China. "They are pushing the EU not to do this, and the US is pushing the EU to do it."The EU and US aim to establish an agreement before July 9, when American authorities plan to implement a 50 per cent tariff on virtually all European products. The EU considers the US relationship more vital, as European exports to America exceed twice the value of those to China, providing the US with substantial negotiating power.The primary challenge facing Beijing lies in the potential consolidation of these initiatives into a broader transformation - beyond US-led restrictions on Chinese exports to a fundamental restructuring of global commerce centred on 'trusted' supply networks, potentially marginalising China.

During his Southeast Asian tour earlier this year, President Xi Jinping called for regional unity as an "Asian family," cautioning against commercial fragmentation.Also Read | Not just Apple iPhones! Android smartphone makers like Samsung, Motorola step up exports from India to US; move due to Trump’s tariff policiesChina typically counters opposition through selective trade restrictions. Following EU tariffs on Chinese electric vehicles last year, Beijing initiated anti-dumping investigations into European brandy, dairy and pork products.

In 2023, it suspended Japanese seafood imports after perceiving criticism from G7 meetings in Japan. A diplomatic dispute with Australia in 2020 resulted in trade limitations affecting various commodities, including lobsters, wine and barley."If some agreements explicitly list China as a target and show that some countries are cooperating or collaborating with the US to 'contain China,' then China will definitely respond," said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing and a former adviser to the Chinese Commerce Ministry.