RPT-For retailers, US-Vietnam trade deal leaves questions

By Helen Reid

LONDON, July 3 (Reuters) - A trade deal announced by the U.S. and Vietnam creates new question marks for sportswear and clothing retailers like Nike and Adidas that source shoes and clothes from factories in the Southeast Asian country, industry experts said on Thursday.

The U.S. will impose a 20% tariff on many imports from Vietnam, while "transshipping" from third countries through Vietnam will face a 40% levy, President Donald Trump said on Wednesday.

Garment and shoe factories in Vietnam rely heavily on yarns, polyester fabrics, and trims like buttons and zippers imported from neighbouring China. It was not immediately clear whether such products assembled in Vietnam from Chinese inputs would be vulnerable to the transshipment tariff.

Typically, transshipment would designate a product mostly made in China, shipped to Vietnam and then relabelled and exported as made in Vietnam.

U.S. customs already watches for that practice, but the Trump administration has hardened its stance on it, with U.S. Treasury Secretary Scott Bessent saying that "a huge amount" of trade from Vietnam is transshipment from China, in a CNBC interview Thursday.

Many questions remain over the trade agreement, said Sheng Lu, professor of fashion and apparel studies at the University of Delaware.

"Strictly speaking, transshipment is illegal, whereas using foreign components in compliance with rules of origin requirements is common practice," said Lu. "Confusing these two distinct practices will only create greater uncertainty and risk further supply chain disruption."

Vietnam has been a top destination for retailers and brands looking to reduce their reliance on factories in China, but has also become a target of Trump's aggressive trade policy.

Vietnam is a key producer of sports shoes for Nike, accounting for 50% of Nike branded shoes overall in the company's fiscal year 2024, and is also Adidas' biggest supplier country, producing 27% of the German brand's products.

A Nike spokesperson said the company is still looking into the details of the deal. Adidas declined to comment.

"With this new change and with the potential for this transshipment tariff, I think it's going to cause a lot of importers to really question, is Vietnam really a good other option?" said Lila Landis, a customs compliance consultant based in Fort Worth, Texas.

While details are still not confirmed, the 40% tariff could possibly be stacked atop the correct China duty for any given product, making it highly punitive, Landis added.

Overall, the U.S. imported 274 million pairs of shoes from Vietnam last year, according to industry group Footwear Distributors and Retailers of America (FDRA), which on Wednesday called the tariffs unnecessary and said they would hit American consumers.

"There's disappointment in the 20% on the Vietnam side," said Joe Jurken, managing director at supply chain management company The ABC Group.

The announced tariff on Vietnam narrows the gap with China, which the U.S. has hit with a 55% tariff, and may even tempt some brands to stick with China, Jurken said, instead of switching suppliers which is lengthy and costly.

"There's a lack of capacity in Vietnam because there's not enough factories, and there's an overabundance of capacity in China... so the Chinese factories, in our opinion, will benefit from this over the short term," Jurken said.

Still, the 20% tariff rate is better than the 25-30% rate the market feared, according to analysts at Raymond James.

And the deal announcement goes some way to end uncertainty, and could encourage some retailers that were considering Vietnam to go ahead and place orders, said Jim Kennemer, managing director at Cosmo Sourcing.

"It's going to be nearly impossible to get a 100% not-China supply chain," he said.