By Priya Raman

Vietnam’s goods trade surplus with the United States reached $140 billion in the first 10 months of 2026, according to figures cited by former U.S. ambassador Marc Knapper, who said only a “very small percentage” of Vietnamese exports were illegally transshipped.

Does the $140 billion surplus show systematic fraud?

Not on Knapper’s account. Speaking on Nov. 3, 2026, at the Fortune Southeast Asia 500 Summit in Ho Chi Minh City, the ambassador, who served from 2022 to 2026, separated routine supply-chain relocation from deliberate tariff evasion.

Illegal transshipment means falsifying a product’s country of origin to avoid tariffs. A Vietnamese exporter could import a finished product from China, relabel its origin as Vietnam and export it to the United States. Knapper called that fraudulent and said Vietnam was cracking down hard through counterpart customs agencies, including U.S. Customs and Border Protection.

The dispute now concerns the label. Knapper said the term had come to mean different things to different people. Parts of the Trump administration, he added, were applying it to broader supply-chain activity of the kind every country undertakes, including U.S. assembly using inputs from neighboring countries. Some officials, he said, had falsely labeled normal commerce as transshipment.

The administration takes a broader view. It argues that moving parts of a Chinese supply chain overseas to obtain lower tariffs hurts the U.S. economy and denies the federal government of tariff revenue.

In August 2026, the White House Office of Trade and Manufacturing Policy accused more than 40 economies of participating in a “Great Transshipment Scam.” The office estimated that the activity cost the federal government $19 billion to $26 billion a year in lost revenue.

Knapper used the $140 billion surplus to challenge the economic premise. The balance grew despite U.S. tariffs, he said, because American consumers and manufacturers continued to favor goods made in Vietnam. That argument does not settle individual customs cases, but it puts the scale of alleged fraud against the commercial relationship.

What tariffs now apply to Vietnam?

The July 2025 agreement created two rates:

• 20% on Vietnam’s regular exports to the United States.
• 40% on goods deemed transshipped from China, although the deal did not explain how that rate would be calculated.

The agreement fell into limbo after the U.S. Supreme Court deemed most of President Donald Trump’s tariffs unlawful in February 2026. The administration now levies 12.5% on many Vietnamese goods, following a Section 301 investigation (a U.S. trade review that alleged Vietnam had not done enough to combat forced labor).

Why are supply chains moving beyond China?

Companies have shifted parts of their production networks from China to Southeast Asia under a “China plus one” strategy (adding production outside China). Three forces underpin the move:

• Rising U.S. protectionism.
• Increasing costs in China.
• A stronger push for supply-chain resilience (the capacity to absorb disruption without relying on one source).

Chinese companies also want a larger regional role, treating Southeast Asia as both a manufacturing destination and a consumer market. “They call it their chuhai strategy, which means getting out of China and doing business in Southeast Asia and Vietnam,” Vietnam SuperPort CEO Yap Kwong Weng said.

He asked whether companies could enter Vietnam now, seize the opportunity and gain a competitive advantage.

The commercial scale is substantial. Trade between China and ASEAN (the Association of Southeast Asian Nations) exceeded $1 trillion for the first time in 2025, according to China’s State Council. That figure does not isolate transshipment, but it shows how deeply the region’s production and commerce have become integrated.

Vietnam is also adding transport capacity. In August 2026, the National Assembly approved an additional $3.3 billion for a railway linking the country with China. The project has encountered setbacks because land clearance has been delayed, and officials target completion by 2030.

What should policymakers and investors watch?

The immediate issue is definition. If transshipment means only false country-of-origin claims, enforcement should target documented fraud. If it includes ordinary cross-border sourcing and assembly, tariffs can attach to widely used production networks rather than deliberate evasion.

That distinction matters because the July 2025 agreement set a 40% rate for Chinese goods deemed transshipped but left the calculation unspecified. The February 2026 court decision has since undermined the legal basis for most Trump tariffs, while the current 12.5% levy rests on the separate Section 301 forced-labor investigation.

For exporters, the practical test is documentary: whether origin records match the goods, and whether customs treatment follows the narrow fraud definition or the administration’s broader supply-chain theory. Knapper’s position leaves little room for disguising Chinese products, but considerable room for companies that legitimately source inputs across borders.

Vietnam’s enforcement record will shape credibility. Knapper said the government is working hard with counterpart agencies, including U.S. Customs and Border Protection, a claim Washington will test against the administration’s estimate of $19 billion to $26 billion in annual losses.

The larger commercial fact remains the $140 billion surplus, which grew despite tariffs as demand for Vietnamese goods held up. Washington’s choice is whether to narrow its focus to proven fraud or extend tariffs to the region’s broader, increasingly integrated production model.