US-Vietnam trade deal has serious implications for South-east Asia

Vietnam may have just set a higher bar for Asean countries, writes former US deputy trade representative.

- Wendy Cutler

Last week's announcement of the US-Vietnam trade deal was an important milestone for both Vietnam and the US. Although details are sparse, the agreement spares Vietnam from facing one of the steepest reciprocal tariff rates of any country at 46 per cent.

The outcomes of the talks are not a one-off — they will have serious implications for other countries, particularly Vietnam's fellow Asean members. By sealing the first trade deal between the US and an Asian partner during the Trump administration's 90-day tariff pause, Vietnam becomes the trendsetter for its neighbours as they struggle to finalise their own deals or seek an extension to work through remaining difficult matters.

Both Vietnam and the US, for their own reasons, had important incentives to prioritise negotiations, as evidenced by the quality and quantity of engagement in recent months.

Through their agreement, Hanoi dodged the high reciprocal tariff threatened by the US, allowing its goods to continue to flow to its top export destination, albeit at a reduced tariff rate.

With close to one-third of its exports headed to the US, Hanoi would have suffered major economic fallout without a deal.

Indeed, the International Monetary Fund projected that a high tariff scenario could shave 1.7 percentage points off Vietnam's gross domestic product growth.

Vietnam has now successfully positioned itself with lower US tariffs than China and most of its Asean partners — at least for now — preserving a competitive advantage as global companies re-evaluate their supply chains.

The US also had a strong interest in concluding a deal with Vietnam.

In particular, Washington has been under pressure to show its tariff policy is working by announcing other trade deals beyond the one pact reached with Britain. Its initial bold assertion of concluding "90 deals in 90 days" has not panned out, with negotiations proving more difficult and time-consuming than expected.