Vietnam’s $140 billion U.S. surplus isn’t driven by illegal transshipment, says ex-ambassador Marc Knapper

Former U.S. ambassador Marc Knapper said only a “very small percentage” of Vietnam’s U.S.-bound exports are illegally transshipped, while warning that normal cross-border supply-chain activity is being labeled transshipment. Vietnam’s goods trade surplus with the U.S. reached $140 billion in the first ten months of the year; an announced 2025 deal with 20% tariffs on regular exports and 40% on goods deemed transshipped from China is in limbo after the Supreme Court’s tariff ruling. The U.S. currently levies a 12.5% tariff on many Vietnamese goods.

Analysis

The investable issue is not the estimated prevalence of outright origin fraud; it is whether U.S. enforcement treats Chinese content and ordinary Vietnamese assembly as equivalent. That ambiguity raises the hurdle rate for new Vietnam capacity: companies may need more local processing, supplier traceability and customs documentation before they commit capital. This favors established, auditable production networks over “China plus one” assembly that changes location but not value added. It can also divert incremental orders toward other Asian exporters, though a broad regional substitution is not automatic given qualification and capacity constraints.

Near term, the tariff framework is unusually unstable: the agreement’s origin test is unspecified and the Supreme Court ruling has put much of the tariff regime in limbo. The large bilateral surplus may keep Vietnam politically salient even if actual fraudulent transshipment is limited; enforcement could therefore tighten based on trade flows and optics, not just proven fraud. That is the main downside to treating Vietnam as a clean tariff-relocation beneficiary.

Over 6–18 months, genuine localization and better customs visibility could preserve Vietnam’s cost advantage while reducing the risk premium. China–Vietnam rail investment is a longer-dated logistics catalyst, not a near-term earnings driver; land-clearance and delivery risk remain. The contrarian point: tariff uncertainty may be priced as a blanket Vietnam risk, while the eventual winners may be firms able to document real local value added. But the article provides no company-level exposure or valuation evidence, so avoid a broad directional bet pending rules and disclosures.

Key Decisions for Investors

• No immediate broad Vietnam long. Put the Vietnam ETF (VNM) on a conditional watchlist: consider exposure only after U.S. rules clarify how origin and Chinese content will be assessed and Vietnam exporters demonstrate compliance; size against the risk of a renewed tariff escalation.
• For the next 1–3 months, monitor the Supreme Court implementation path, any replacement tariff authority, published customs guidance, and Vietnam-specific enforcement cases. A clear, value-added-based test is a positive catalyst; a presumption that Chinese inputs imply transshipment is a thesis breaker.
• Prefer companies with verifiable local production and diversified sourcing over pure assembly relocations. Before investing, verify local-content disclosure, China-input dependence, U.S. revenue share, and any customs holds; these company-level facts are absent here.
• Treat the planned China–Vietnam rail link as a 2030-oriented watch item, not a current logistics trade. Delays in land clearance or further cost increases would weaken the infrastructure spillover thesis.