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Vietnam garment factories rely on fabric, items made in

China

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Unclear yet how trade deal will affect Nike ( NKE ) and Adidas

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US imported 274 million pairs of shoes from Vietnam last

year,

group says

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 ( NKE ) 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 ( NKE ),

accounting for 50% of Nike ( NKE ) 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 ( NKE ) 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.