US cotton becomes Vietnam's tariff shield

A provisional July 2nd agreement is now proposing a 20 per cent tariff on most Vietnamese exports to the US, along with a steep 40 per cent rate on goods containing Chinese inputs.

With US imports from Vietnam hitting $136.6 billion in 2024, the stakes remain huge.

As a hedge and goodwill signal, Vietnamese textile mills have rapidly pivoted to US cotton, booking 33,600 running bales and taking delivery of 95,900 running bales in late June/early July—by far the highest from any purchasing country.

Whether this shift endures depends on the speed and enforceability of the final trade agreement.

Goodwill cotton diplomacy

Cotton emerged as diplomatic currency during the June trade talks in Washington.

Industry Minister Nguyen Hong Dien’s proposals, seen as demonstrating “goodwill and efforts,” helped pave the way for the provisional deal. Vietnam underlined its commitment through a $2 billion agricultural Memorandum of Understanding (MoU) hammered out by a 50-company delegation, which included cotton buyers.

Already by mid-April, Vietnamese buyers had taken on the world’s largest commitment to US upland cotton of 2.454 million running bales, with weekly shipments setting records.

Trade advisers are now advising mills to build watertight, traceable US content documentation to avoid the potential 40 per cent penalty and heightened Uyghur Forced Labor Prevention Act (UFLPA) scrutiny. The longevity of the current MoU hinges on rigorous US enforcement of origin rules post-ratification and Hanoi’s swift translation of the framework into law.

Brokers note that when new Vietnamese tariffs and UFLPA traceability costs are factored in, landed US cotton often undercuts Indian prices, driving tender switches. If the US finalises the deal and enforces rules strictly, the commercial logic favouring US cotton appears solid.

Logistical advantages

Goodwill aligns with compelling economics. US cotton offers Vietnamese mills three key advantages. First is superior traceability. Tools such as US Department of Agriculture (USDA) classing data, the US Cotton Trust Protocol and Supima’s TextileGenesis DNA provide unmatched end-to-end digital audit trails crucial for compliance.

Second is the ample US supply—projected at 12.5 million bales for 2025/26—and stable futures prices of between 68-69 cents per pound offer security.

Finally, transit from the US Gulf to Ho Chi Minh City, at between 38-42 days, is significantly faster than from Brazil, reducing inventory costs, and the base US most favoured nation (MFN) duty for cotton garments—at 16.5 per cent, for example (for cotton knitted tops)—is lower than the 32 per cent for synthetic fibre-based garments, helping absorb the new tariffs and preserving competitiveness.

Global suppliers squeezed

Vietnam’s pivot is reshaping global cotton flows, squeezing traditional suppliers. West African nations like Côte d’Ivoire ($13 million exports to Vietnam in 2023) and Benin ($8 million) face exclusion.

Chinese cotton merchants, who sold product worth $1.64 billion to Vietnam in 2023, are also being hit hard and Hanoi’s draft 40 per cent tariff on Chinese inputs has prompted mills to review contracts and even cut shifts. Unless these suppliers can match US traceability guarantees and navigate the new tariff landscape, further erosion in Vietnam’s once-diversified market is likely.

Brands adjust strategy

The repercussions will be global. Major brands sourcing heavily from Vietnam such as Nike, Lululemon and Ralph Lauren face significant new US duties, making traceable US cotton vital for UFLPA compliance and “clean supply chain” narratives.

Sustained Vietnamese buying of US cotton could further strain supplies.

Vietnamese mills are now adopting ‘two-basket’ sourcing—premium US cotton for the US market, and cheaper alternatives from Brazil and West Africa for the EU and Japan.

This will pressurise West African exporters into rapidly implementing traceability upgrades while Chinese merchants are shifting to exporting yarn and fabric, hoping “substantial transformation” rules avoid the 40 per cent levy, although legal uncertainties remain.

ALCHEMPro News Desk (IL)