US reciprocal tariffs – highlights of the impact on Vietnam

In detail

The key highlights of the US tariff measures are as follows:

1. Base tariffs on all countries (10% tariff): A universal base tariff of 10% will apply to almost all imports from all countries, effective 5 April 2025².
2. Higher tariffs on major trade partners: The US has imposed additional reciprocal tariffs on countries with which it has significant trade deficits, effective 9 April 2025³. The base rate will thus increase from 10% to the country specific rates for these countries. These country-specific tariffs are notified for 57 countries. 

These tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and the respective trading partner. Moreover, the tariff rates are over and above the prevailing import duty rates in the US. For the purposes of understanding the impact of these tariffs, two illustrative examples are as follows:

Exemptions from reciprocal tariffs

It is also important to note that while ‘most’ products have been included within the scope of reciprocal tariff imposition, some products have been excluded from the ambit of its application as well. Some of these exclusions include -

• Goods covered in Annex II of the order including copper, pharmaceuticals, semi-conductors, lumber, critical minerals and energy products;
• Steel, aluminium, automobiles and auto parts already covered under section 232 tariffs;
• Imports from countries subject to Column 2 of Harmonized Tariff Schedule of the US (higher tariff rates applied to countries that do not have normal trade relations with the US, e.g. Russia, North Korea, etc.);

The executive order also notes that the ad valorem rates apply only to the non-US content of any subject article, provided it is at least 20% of the value of the subject article. This means, if the imported product contains more than 20% or more of ‘US Content’ (components produced or substantially transformed in the US), the tariff applies only to the non–US portion. This could imply variation of reciprocal rates as per the extent of US content, as indicated below

Table 4 – Variability of applicable reciprocal tariff rates depending on US Content

What next?

As the Indian Government will be exploring various avenues for redressal vis-à-vis tariffs imposed by the US through the ongoing Bilateral Trade Agreement (BTA) negotiation, it becomes very crucial for the businesses to voice their opinion to the government about specific reliefs.

Moreover, it is also important to analyse the supply chain for the cost impact as well as the impact of competitive landscape. Overall, businesses may consider the following strategy as a way forward:

1. Tariff Impact analysis: To assess cost implications and opportunities, and to adjust product focus, pricing, and sourcing strategies so as to manage tariff impacts effectively.
2. Supply Chain Assessment: To review and optimise supply chains through the usage of available trade instruments (FTAs, etc.), and to develop alternative sourcing and manufacturing strategies to minimise tariff impacts.
3. Compliance and Regulatory Assessment: Revisiting trade and regulatory compliances, including origin checks and customs requirements.

Businesses at large would also want to re-work their operations based on the IDEA Framework, which provides a structured approach to navigate trade uncertainties and leverage emerging opportunities. This can be accessed from here.

Sources

1. Executive Order – Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits dated 2 April 2025; Fact Sheet – President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security dated 2 April 2025