In what’s being described as a high-stakes recalibration of global trade, a newly signed trade agreement between the US and Vietnam is sending ripples through the world’s apparel and textile supply chains. Touted by the Trump administration as a "Great Deal of Cooperation," the pact replaces the 2000 Bilateral Trade Agreement (BTA), ushering in stricter tariff rules that are already prompting global fashion brands to rethink their sourcing strategies.

But beneath the headlines lies a more complex story—of shifting power equations, transshipment crackdowns, and a stark warning for India, which is now in its own critical phase of negotiating a trade deal with Washington.

From preferential access to flat tariffs

The previous BTA between the US and Vietnam granted Vietnamese exporters preferential tariff rates ranging between 2 per cent to 10 per cent, helping transform Vietnam into a sourcing powerhouse. But under the new agreement, all Vietnamese exports to the US now face a flat 20 per cent tariff, while US goods will enter Vietnam duty-free.

“This is a double-edged sword,” said a trade official familiar with the negotiations. “While it opens up the Vietnamese consumer market to American brands, it significantly erodes the competitive advantage Vietnam enjoyed in textiles, furniture, and electronics.” The change also follows allegations from US officials, including Peter Navarro, that Vietnam was acting as a backdoor for Chinese goods seeking to evade US tariffs. These claims have materialized into one of the deal’s most consequential clauses: a 40 per cent duty on transshipped goods.

Transshipment clause, Vietnam’s China dilemma

At the heart of the new deal lies a contentious provision—a punitive 40 per cent tariff on goods exported from Vietnam but manufactured in other countries, particularly China. This move directly targets the widespread practice of transshipment, where Chinese-origin goods are rerouted via Vietnam with minimal processing.

For the $52 billion apparel trade between Vietnam and the US, this spells disruption. Roughly 70 per cent of Vietnamese apparel exports to the US depend on Chinese fabrics or components. Under the new rules, these products could now be reclassified and hit with the steep 40 per cent levy.

“This clause fundamentally alters how origin is interpreted in global trade,” says Amita Joshi, a trade economist. “If you’re a brand sourcing yarn from China and stitching in Vietnam, you’re no longer safe. The value-added threshold has effectively been tightened.”

Fashion industry fallout

For global brands like Nike, Lululemon, and H&M, Vietnam has long been a vital part of their supply chains. Between 2001 and 2023, Vietnam’s exports in textiles, apparel, footwear, and furniture grew from $800 million to over $135 billion, helped by favorable access to Western markets.

But the 20 per cent flat tariff, while better than the originally proposed 46 per cent, still dampens that growth story. According to Apparel Export Promotion Council (AEPC) data, the new duties could increase landed costs by 8–12 per cent for many US retailers depending on product type and production footprint. “The big fear is not just the tariff. It's the administrative and compliance complexity,” said a sourcing executive from a US retail giant. “You can’t just show an invoice now—you need traceability down to the fiber.”

Table: Vietnam’s top export categories to the US (2023)

India’s turn, what the GTRI warns about

As India prepares for its own trade pact with the US, the Global Trade Research Initiative (GTRI) has issued a clear warning: learn from Vietnam’s cautionary tale. “India must negotiate enforceable rules of origin and guard against flat duty structures,” said Ajay Srivastava, Co-founder of GTRI. “Otherwise, Indian exports could end up facing the same unpredictable barriers.”

GTRI’s recommendations for India

• Avoid flat tariffs: These fail to account for sectoral differences and can cripple specific industries.

• Insist on clear origin rules: The complexities and potential legal ambiguities surrounding the 40 per cent transshipment tariff underscore the importance of clear and enforceable rules of origin in trade agreements.

• Prepare for sudden policy shifts: What was a trade advantage yesterday can become a liability overnight.

Table: India-US apparel trade (FY24)

Resilience over cheap labor

Global supply chains are already responding. According to a 2025 Fashion Industry Pulse Survey, 43 per cent of brands are looking to diversify sourcing from Vietnam, with increased interest in Mexico, India, and Central America. “Resilience is now the keyword,” said Michelle Hwang, a senior VP at a global apparel group. “Low cost isn’t enough. Brands want agility, transparency, and political safety.”

Table: Brands most dependent on Vietnam

Trade policy as a fashion trendsetter

This isn’t just a trade deal—it’s a bellwether for how geopolitics is increasingly shaping retail shelves. The US-Vietnam agreement reflects a world where trade liberalization is no longer a given, and where every tariff line carries strategic weight. For Vietnam, the deal is both a setback and an opportunity to localize more of its supply chain. For the US, it represents a move towards fair trade enforcement.

Indeed, the deal is undeniably sparking concern for global fashion sourcing executives. While Vietnam's cost structure and proximity to Asian markets have positioned it as a preferred sourcing hub, the new tariffs and the strict enforcement of transshipment rules necessitate a strategic reassessment. Companies are now faced with the challenge of balancing cost efficiencies with the imperative of supply chain resilience. This could accelerate the trend of diversifying manufacturing bases away from over-reliance on a single country and exploring new sourcing destinations to mitigate future trade-related disruptions. For India, it’s a warning to tread carefully but also a chance to position itself as a stable, scalable, and rule-abiding sourcing destination.

“In the new global trade order, agility, clarity, and compliance will matter more than just low wages,” opines Joshi. “India’s edge will lie in playing the long game, not chasing short-term wins.”