U.S. tariff schedule routes production to Vietnam rather than American factories, trade data show

Summary

U.S. tariff policy, structured as country-of-origin rate differentials, drove $123 billion in Vietnamese imports in H1 2026 — a 40% increase from a year earlier — and a $114 billion bilateral surplus with Vietnam, while imports from China fell from $168 billion to $129 billion over the same period.
TOV Furniture founder Bruce Krinsky told the Wall Street Journal the company “moved simply because of the tariffs,” documenting a sourcing flip from 60% China and 25% Vietnam in 2024 to 60% Vietnam and 25% China in 2026, the same logic Apple, Nike, and Lululemon executed at scale over the prior decade.
The Penn Wharton Budget Model reported an effective tariff gap of 16.7 percentage points between Chinese imports at 23.2% and Vietnamese imports at 6.5% in June 2026, against a global average of 7.1% in the same PWBM series, anchoring the cross-border substitution that the stated U.S. reshoring objective does not address.
About 60% of Vietnamese exports to the U.S. are labeled as machinery, electronics, and appliances, per AmCham Vietnam president Mark Gillin, in categories dominated by Samsung, Intel, and Foxconn operations physically located in Vietnam — a composition that cuts against White House trade adviser Peter Navarro’s transshipment allegation for the dominant share of the surplus.
The tariff schedule contains no enforcement mechanism that would bind production to U.S. soil, leaving the equilibrium at a stable Vietnam-routed outcome under the current instrument rather than the stated U.S. production target.

Lede paragraph

For the trade policy launched in 2025 to revive American manufacturing, the first half of 2026 produced the wrong answer — and the framing of the resulting trade data shapes which actor a reader holds responsible. Federal trade data, reported Wednesday by the Wall Street Journal, show that U.S. imports from Vietnam reached $123 billion in the six-month period, a 40% increase from a year earlier and more than the $114 billion in Vietnamese goods shipped to the U.S. across all of 2023. Vietnam’s bilateral surplus with the United States now exceeds those run by Taiwan, Mexico, and China, an outcome that flows directly from the tariff structure’s 16.7-percentage-point gap between the effective rate on Chinese imports (23.2% in June, per the Penn Wharton Budget Model) and the rate on Vietnamese imports (6.5%). The data describe not a return of production to American soil but a relocation to the lowest-tariff jurisdiction that meets the cost and capability profile of large multinationals and small importers alike — a path that TOV Furniture founder Bruce Krinsky described to the Journal in five words: “We moved simply because of the tariffs.”

Why production relocated to Vietnam, not the United States

A root-cause analysis of the substitution, organized around the policy instrument, the enforcement procedure, the procurement behavior, and the receiving factory capacity, isolates the tariff schedule itself as the load-bearing factor.

The tariff instrument in force at mid-2026 is a country-of-origin rate schedule, not a content rule. That distinction is the entire story. The schedule raises the cost of importing from one country — China, at an effective 23.2% in June per the Penn Wharton Budget Model — while leaving the cost of importing from another country — Vietnam, at 6.5% — below the global average of 7.1% in the same series. The schedule does not, by design, raise the cost of importing from any country whose producers happen to operate inside Vietnam, which is most multinational electronics operations on the planet. The substitution that the data record is not a bug in the implementation of the policy. It is what the instrument, taken on its own terms, is built to produce.

A procurement officer at any company that imports finished goods can run the arithmetic. If the gap between producing in China and producing in Vietnam exceeds the operating-cost difference between the two — and at 16.7 percentage points it almost always does — the rational move is to relocate production to Vietnam or to Vietnam-routed supply chains. The move is not to bring production home to the United States, where neither a tariff nor a content rule intervenes to lower the cost of U.S.-located production. The arithmetic is the same whether the firm is Apple relocating significant electronics production, Nike shifting footwear, Lululemon relocating apparel, or a Miami-based furniture company sourcing sofas and beds.

Bruce Krinsky, the founder of TOV Furniture, told the Journal, “We moved simply because of the tariffs.” His company’s sourcing ratio flipped in roughly two years, from 60% China and 25% Vietnam in 2024 to 60% Vietnam and 25% China in 2026. The 40% year-over-year rise in U.S. imports from Vietnam in H1 2026 — from roughly $88 billion in H1 2025 to $123 billion in H1 2026 — is the aggregate signature of that procurement logic in motion across many firms at once.

Three structural facts sharpen the picture. First, Vietnam’s factory base, anchored by Samsung, Intel, and Foxconn, has been absorbing multinational production for years; the substitution is fast because the receiving capacity was already in place. Second, the tariff gap is large enough to overcome any per-unit cost penalty for relocating; the 16.7 percentage points exceeds the labor-cost gap between Vietnam and China for most product categories. Third, the U.S. Customs rules-of-origin verification process is not, on the evidence, calibrated to distinguish between genuinely Vietnamese value-add and a finishing step that attaches a label to a Chinese-origin good. The structural gap is in the instrument, not in any individual actor’s execution.

The size of the H1 2026 flows underscores the substitution at work. Imports from Vietnam reached $123 billion in six months, more than the full-year 2023 total of $114 billion. Imports from China fell to $129 billion from $168 billion in the same period a year earlier — a $39 billion contraction concentrated in the categories where Vietnamese supply chains have absorbed multinational production. The transshipment claim advanced by Navarro identifies a real possibility, but at a scale that the data do not support as the dominant mechanism: about 60% of Vietnamese exports to the U.S. are labeled machinery, electronics, and appliances, per Gillin, in categories dominated by companies with substantial Vietnamese operations rather than garment-finishing work.

Who gains, who loses, and whose stake is left out of the data

A stakeholder map of the parties the article names — and the parties it does not — makes the concentration of gains and losses visible.

The trade-flow shift that the Journal reports reorganizes the position of more than the three countries named in the headline. At least a dozen parties, and several not named in the article at all, have a stake in how the substitution continues.

The clearest winners are the Vietnamese economy and the multinational electronics operations anchored inside it. Vietnam captured a $114 billion bilateral surplus with the U.S. in six months, surpassing Taiwan, Mexico, and China on a bilateral basis. Samsung, Intel, and Foxconn — the firms Gillin names as the anchors of the 60% machinery/electronics/appliances share — operate campuses inside Vietnam and have done so for years. Their advantage is now amplified by the rate differential that the U.S. tariff schedule creates.

The clearest losers by headline volume are China and the stated constituency of the tariff policy itself. Chinese imports fell from $168 billion to $129 billion in H1 2026, a $39 billion year-over-year contraction concentrated in the electronics and machinery categories where Chinese producers had historically held U.S. shelf space. American manufacturing workers, named by the policy’s stated objective, are the constituency the data do not serve: the substitution routes production to Vietnam rather than back to U.S. soil, and the reshoring promise is the same in the H1 2026 numbers as it was at the policy’s launch — a stated aim rather than an observed outcome.

U.S. importers occupy three materially different positions inside this reallocation. High-margin branded electronics firms (Apple named in the article) and branded apparel firms (Nike, Lululemon named in the article) operate with capital reserves, supplier diversification options, and brand premiums that absorb tariff swings. Smaller reallocators — the TOV Furniture class, where Krinsky’s testimony anchors the data — operate on thin margins and face a different risk: U.S. Customs and Border Protection can reclassify Vietnam-origin entries as Chinese-origin, and Krinsky has separately disclosed, in Furniture Today reporting on intensifying CBP scrutiny of furniture importers, an approximately $70,000 enforcement charge on a reclassified entry — the difference between the China and Vietnam tariff rates plus interest — that consumed the Vietnam discount for his company on that shipment.

U.S. consumers occupy a position that the trade-data headlines obscure. The $123 billion in H1 2026 imports from Vietnam carries a tariff at the rates the schedule sets, and at a roughly proportional pass-through, the consumer-price exposure on a single tariff differential — say the 25% rate TOV cites on Vietnam-sourced furniture against roughly 50% on Chinese-sourced equivalents — implies retail-price increases in the mid-double-digit percentages for affected categories and tens of billions of dollars in aggregate consumer cost across the volume scale. This exposure does not appear in the surplus figure but sits underneath it.

Two parties whose stake the article does not name are worth flagging. Vietnamese factory labor absorbs the 40% year-over-year volume expansion at the production end; the wage and working-conditions stakes for that workforce are real, and they intensify with the scale of the rerouting. Mekong-delta environmental-impact communities, adjacent to the factory footprint that the electronics corridor has built and is expanding, are projected stakeholders whose salience will rise as the production scale continues to climb. Neither group’s position is in the trade-data headline, but both are downstream of it.

What the current tariff instrument cannot deliver

A game-theory read of the same setup, with each party’s revealed payoff written down, shows why the equilibrium is stable rather than transitional.

The shape of the substitution, taken on its own terms, is a stable outcome. Procurement officers in firms that have not yet relocated face the same incentive structure that TOV and the multinationals have already acted on. Without new tariffs on Vietnam itself, the 16.7-percentage-point gap continues to favor Vietnam-routed production. The tariff structure produces a country-of-origin outcome, and absent a different instrument, the country-of-origin outcome will persist.

The mechanism the tariff schedule lacks is a binding device. The schedule announces a reshoring objective, but it contains no commitment, no sunk cost, and no future enforcement that would make production return to U.S. soil. Firms respond to the rate differential they face, not to the policy’s stated aim. The promise that production will come back to the United States is, in practice, an announcement without an instrument behind it — the kind of statement a procurement officer discounts entirely when running landed-cost arithmetic.

The transshipment dispute illustrates the same gap. Navarro’s allegation that Chinese firms route nearly finished goods through Vietnam for relabeling identifies a category of evasion that the schedule should in principle address. The instrument for addressing it is verifiable value-addition audits with penalties that exceed the per-unit arbitrage between the 23.2% China rate and the 6.5% Vietnam rate. No such audit regime is currently in force, per Gillin’s characterization of the customs process. The penalty that would make evasion costly is absent, so evasion — to whatever scale it occurs — is the obvious move for the marginal firm.

Three questions follow from the analysis above, and they are the questions a reader can carry forward into the next story on this file.

First, will the U.S. raise tariffs on Vietnam itself? The constraint is visible: April 2025 communications between Trump and Vietnamese leader To Lam produced a tariff-truce signal — Trump proposed a 46% rate on Vietnamese imports, the two leaders spoke by phone, the rate was deferred for negotiation, and the eventual framework agreement in July 2025 set the rate at 20%, per public reporting — and Vietnam-routed apparel exposure at Nike and Lululemon creates a publicly observable cost to penalizing Vietnam further. The instrument that would close the rate gap is available; whether the political coalition will bear the cost of using it is the open question.

Second, will the U.S. supplement country-of-origin tariffs with content rules or production tax credits that reward U.S.-located value-add regardless of import source? That move addresses the depth of the instrument gap rather than its surface; it is the lever the structural critique of the policy identifies as the corrective.

Third, will the Customs and Border Protection verification regime be calibrated to distinguish genuinely Vietnamese value-add from a finishing step on Chinese-origin goods? The scale of the audit regime that would impose that distinction is a cost the U.S. taxpayer would bear; the political appetite for that cost is an open question.

Analytical techniques used in this piece

This analysis applies the methods below. Each links to a short, plain-English explainer you can read and reuse.

Root-Cause Analysis: Traces a symptom back along its causal chain to the conditions that actually generated it.
Stakeholder Mapping: Charts the parties to a situation — their interests, power, and alignments.
Strategic Interaction (Game Theory): Models a situation as a game — players, moves, payoffs, and likely equilibria.