Trump targeting trade loopholes risks 70% of China exports to US
China has increasingly relied on third countries for the manufacturing of final products or components, a trend that accelerated following Trump's first trade war and his imposition of higher restrictions on the world's second-largest economy. China's share of total value-added manufacturing of goods destined for the US through countries including Vietnam and Mexico surged to 22 per cent in 2023 from 14 per cent in 2017, according to Bloomberg Economics.
If Trump is successful in targeting transshipments via higher levies or supply chain requirements, it would threaten 70 per cent of China's exports to the US and more than 2.1 per cent of the Asian country's gross domestic product, the analysts found. There is a risk of additional economic damage if the restrictions weigh on countries' desire to do business with China, they said.
'Trade flows via third countries are substantial and have helped cushion the blow from existing US tariffs,' Bloomberg Economics analysts Chang Shu, Rana Sajedi and David Qu wrote in a research note on Tuesday (Jul 22). 'Tighter controls on these shipments would increase the damage from the trade war and could erode growth opportunities in the long term.'
The US is increasingly adding pressure on China through other countries. In a slew of letters to countries announcing levies by Aug 1 unless bilateral trade deals are agreed, the administration threatened even higher tariffs for goods found to be transshipped. While not providing further details, this could allow the White House to target a broader range of China's exports to the US.
The largest countries that China relies on for shipping goods to the US include Mexico and Vietnam, with the European Union also a key hub. China's role in supplying the world through third parties could shape US agreements with trading partners. There are signs of this already taking place: the US trade deal with the UK includes requirements on supply-chain security and ownership in sensitive sectors.
At the same time, Shu and economists said that 'Uncertainty clouds how rigorously the US will be able to enforce transshipment restrictions. US definitions of localised goods remain vague, and details on verification are lacking.' BLOOMBERG
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