Though investors might be taking it easy on the resumption of trade talks, President Trump seems to be eyeing another trade war. This time, Vietnam seems to be in the line of fire.

The Trump administration imposed hefty tariffs on certain steel products, originally manufactured in South Korea or Taiwan and then shipped to Vietnam for minor processing before getting exported to the United States. Per the Commerce department, through this process, the corrosion-resistant steel products and cold-rolled steel manufactured in Vietnam using substrates from Taiwan or South Korea are actually found to be evading U.S. anti-dumping and anti-subsidy duties.

Is the Tariff Justified?

The Trump administration plans to impose duties of up to 456% on some steel imports from Vietnam, manufactured using some materials from South Korea and Taiwan. It is worth noting here that imports of corrosion-resistant steel products and cold-rolled steel from Vietnam to the United States have risen 332% and 916% ever since tariffs were levied on South Korean and Taiwanese products in December 2015 and February 2016, respectively.

It has also been observed that Taiwan’s cold-rolled steel exports to Vietnam were 29,900 tons in 2016, 32,400 tons in 2017 and 33,500 tons in 2018 (per Bureau of Foreign Trade data).

Commenting on the situation, Robert Carnell, Asia-Pacific chief economist at ING Bank, said that it was not unusual for companies to use such strategies for evading higher duties.

Is Vietnam in Trump’s Line of Fire?

Vietnam has emerged as the largest beneficiary of the trade war between Beijing and Washington. Vietnamese exports to the United States have surged around 30% between January and May 2019. In fact, Vietnam's largest export market is the United States. The country’s trade surplus with the United States has been rapidly growing. During January-May 2019, it widened to $17 billion from $12.9 billion a year ago.

Reading the situation, in an interview with Fox News, Trump recently commented that “a lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China.”

However, fearing the situation might get worse, Vietnam has shown its interest to take appropriate steps against circumvention of U.S. anti-dumping and anti-subsidy duties. In this regard, it has urged local manufacturers to use domestic materials or those manufactured in countries where no tariffs are imposed by the United States.

ETFs in Focus

Against this backdrop, we list certain ETFs which might face the brunt of the imposition of new tariffs on Vietnamese steel imports:

VanEck Vectors Vietnam ETF (VNM - Free Report)

The VanEck Vectors Vietnam ETF tracks before fees and expenses, the price and yield performance of MVIS Vietnam Index. The fund has amassed $467.6 million in its asset base and charges a fee of 68 bps a year. It has a Zacks ETF Rank of 3 (Hold) with a Medium risk outlook.

iShares MSCI Taiwan ETF (EWT - Free Report)

The iShares MSCI Taiwan ETF seeks to track the investment results of the MSCI Taiwan 25/50 Index. The fund has amassed $2.98 billion in its asset base and charges a fee of 59 bps a year. It has a Zacks ETF Rank of 1 (Strong Buy) with a Medium risk outlook (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).

Franklin FTSE Taiwan ETF (FLTW - Free Report)

The Franklin FTSE Taiwan ETF seeks to replicate results that closely correspond, before fees and expenses, to the performance of the FTSE Taiwan RIC Capped Index. The fund has amassed $15 million in its asset base and charges a fee of 19 bps a year. It has a Zacks ETF Rank of 2 (Buy).

iShares MSCI South Korea ETF (EWY - Free Report)

The iShares MSCI South Korea ETF seeks to track the investment results of the iShares MSCI South Korea ETF. The fund has amassed $4.4 billion in its asset base and charges a fee of 59 bps a year. It has a Zacks ETF Rank of 2 with a Medium risk outlook (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

Franklin FTSE South Korea ETF (FLKR - Free Report)

The Franklin FTSE South Korea ETF seeks to track, before fees and expenses, the performance of the FTSE South Korea RIC Capped Index. The fund has amassed $16.1 million in its asset base and charges a fee of 9 bps a year. It has a Zacks ETF Rank of 3.