Trump aims to shut trade loopholes China uses to evade tariffs
The agreement slaps a 20% tariff on Vietnamese exports to the US and a 40% levy on goods deemed to be transshipped through the country. With details still scarce, economists said much will hinge on the framework Washington establishes to determine what it sees as 'Made in Vietnam' and what it sees as transshipments.
Complicating matters is the fact that Chinese businesses have rushed to set up shop across Southeast Asia since Trump launched his first trade war back in 2018. The lion's share of Vietnam's exports to the US are goods like Airpods, phones or other products assembled with Chinese components in a factory in Vietnam and then shipped to America. That's not illegal.
'A lot will depend on how the 40% tariffs are applied. If the Trump administration keeps it targeted, it should be manageable,' said Roland Rajah, lead economist at the Lowy Institute in Sydney. 'If the approach is too broad and blunt, then it could be quite damaging' for China, Vietnam and for the US, which will have to pay higher import prices, he said.
The think tank estimates that 28% of Vietnamese exports to the US were made up of Chinese content in 2022, up from 9% in 2018.
Pham Luu Hung, chief economist at SSI Securities Corp. in Hanoi, said a 40% levy on transshipped goods would have limited impact on Vietnam's economy because they aren't of Vietnamese origin in the first place. Re-routed exports accounted for just 16.5% of Vietnam's shipments to the US in 2021, a share that's likely declined over the past couple of years amid stronger enforcement actions by both governments, Hung said.
'An important caveat is that the rules of origin remain under negotiation,' Hung said. 'In practice, these rules may have a greater impact than the tariff rates themselves.'
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said he's skeptical the latest deal will be effective in stamping out Chinese exports via Vietnam to the US.
'The devil is in the details, but I think China's exports will either go via other markets to the US, or some value-added will be done in Vietnam so the product counts as made in Vietnam, rather than a transshipment,' he said.
As officials across Asia rushed to negotiate lower US tariff levels with their US counterparts this year, Chinese businesses have been just as quick to ramp up their exports through alternative channels in order to skirt punitive US levies.
Shipments from China to Southeast Asia have reached record highs in Indonesia, Malaysia, Thailand and Vietnam this year. And there's been a 'significant increase in correlation' to the region's increase in exports to the US during the same period, Citigroup Inc. economists said in a recent report.
Much of that is likely due to the shifting of legitimate production across the region. Goods destined for the US market may be sent from their factories in Southeast Asia, and what they make in their factories in China will be sent to the rest of the world, said Derrick Kam, Asia economist at Morgan Stanley.
'If you try to represent that in the trade data, it will look exactly like rerouting, but it's not,' Kam said. 'It's essentially the supply chain working itself out.'
But it's transshipment that's been a major concern for Trump's top trade advisers including Peter Navarro, who described Vietnam as 'essentially a colony of communist China' during an April interview with Fox News.
And it's not just been happening in Vietnam.
Not long after Trump unveiled his 'Liberation Day' tariffs on April 2, garment makers in Indonesia started receiving offers from Chinese companies to be 'partners in transshipment,' said Redma Gita Wirawasta, chairman of the Indonesian Filament Yarn and Fiber Producers Association.
Chinese products would be rerouted to Indonesia, undergo minimal processing like repacking or relabeling, then secure a certification that they were made in the Southeast Asian country, Wirawasta said.
When the goods are then exported to the US, they'd be subject to the 10% universal levy that Trump has imposed on nearly all countries, instead of the tariff for China that still equates to an effective level of over 50%, even after a recent 'deal' that lowered levies from a peak of 145%.
With the huge scope for arbitrage, coupled with little policing, that process will prove tough to stamp out.
'Chinese exporters and their affiliates and partners in Southeast Asia are highly skilled at adapting to changing rules, identifying loopholes, and sometimes overstating the extent of value-add by non-China countries,' said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York.
Some final assembly or transshipment may shift to rival Southeast Asian transshipment hubs like Cambodia, Thailand and Singapore, or farther afield to Turkey, Hungary or Poland, Wildau said.
'Another possibility is that the definitions and enforcement mechanisms are fuzzy, rendering the latest deal cosmetic and toothless,' he said. 'Rigorous enforcement would also require a significant boost of resources to enable US customs to verify compliance with the tougher rules of origin.'
There have been efforts across the region to at least be seen to be making an effort to curb the practice. Indeed, Vietnam has made a big deal about cracking down on trade fraud and illegal activity in recent months.
In April, South Korea said it seized more than $20 million worth of goods with falsified origin labels — the majority of which were destined for the US. The Airfreight Forwarders Association of Malaysia issued a warning in May as Chinese brokers promoted illegal rerouting services on social media.
Malaysia has centralized the issuance of certificates of origin with its Ministry of Investment, Trade and Industry, while tapping its customs agency to help curb transshipment. Thailand has expanded its watch list for high-risk products, including solar panels, cars and parts, and is mulling stricter penalties for violators.
Casey Barnett, the president of the American Chamber of Commerce in Cambodia, is already seeing the changes in action. One factory that exports to major US retailers, including Walmart, Home Depot and Lowe's, said that customs officials were very carefully reviewing their products before being sent to the US, he said.
'It's creating some additional paperwork and a little bit of red tape here,' Barnett said.
A senior manager at a logistics company in Cambodia, who asked not to be identified because the matter is sensitive, said export processing time has now stretched to as much as 14 working days — double what it was before.
But in Indonesia, getting a certificate of origin is fairly quick and painless when goods are marked for export, often just requiring a product list and a letter to the provincial trade office, according to Wirawasta. Authorities prioritize checking products that enter the country to ensure they pay the right duties and comply with regulations, he explained. It's rare for them to inspect factories where an export good was supposedly made.
So much so that sometimes, Chinese companies don't even need to muster up some local processing. 'The T-shirt could be finished in China, with a 'Made in Indonesia' label already sewn on,' Wirawasta said.
'Some traders won't even bother to unload the goods from the shipping container,' he added. 'Unloading costs money.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
France 24
30 minutes ago
- France 24
Macron to co-chair Ukraine talks with Europe leaders while in UK: Elysee
"There will certainly be a discussion on how to seriously maintain Ukraine's combat capability," the Elysee Palace said, adding that Starmer and Macron will co-chair the meeting of Kyiv's allies by video link. The meeting on July 10 will come as US-led peace talks on ending the more than three-year-old war against Ukraine have stalled. The United States, Ukraine's biggest military backer since the launch of Russia's full-scale invasion in 2022, said Tuesday it was halting some key weapons shipments to Ukraine. Macron will pay a state visit to the United Kingdom from July 8 to July 10, when he will receive a royal welcome and address parliament. During the Ukraine meeting, Macron and Starmer will speak to Ukrainian President Volodymyr Zelensky and other leaders, including German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni, the French presidency said. The summit will touch upon the deployment of "a reassurance force" to Ukraine after a ceasefire, the Elysee Palace said. The discussions will also focus on "how to increase pressure on Russia to accept an unconditional ceasefire that it has consistently refused," the French presidency added. Moscow has in recent weeks ramped up missile and drone attacks on Ukraine, as US support for Kyiv has appeared to waver under US President Donald Trump. Trump and Russian leader Vladimir Putin spoke by phone on Thursday. The US president said he made no progress with Putin on ending the Ukraine war, as the Kremlin insisted Putin would stick to his aims in the conflict. © 2025 AFP
Euronews
an hour ago
- Euronews
China's first domestically built aircraft carrier visits Hong Kong
China's first domestically built aircraft carrier, the Shandong, docked in Hong Kong on Thursday as part of Beijing's campaign to boost patriotism, just days after the territory marked the 28th anniversary of its handover from British to Chinese sovereignty. Escorted by a vessel from its strike group, the Shandong entered Hong Kong waters in the early hours of the morning, accompanied by two destroyers and a frigate, according to Chinese state media. The warships will be open to public visits over the weekend. Local media reported that residents had already bought all 10,000 tickets for the public tours. Of those, 2,000 were allocated for visits aboard the Shandong, with the remainder for the accompanying destroyer and frigate. The visit comes as Beijing intensifies efforts to foster national pride in Hong Kong, particularly following the widespread anti-government protests in 2019. Since then, many pro-democracy activists have been imprisoned under sweeping national security legislation. Although Hong Kong retains some semi-autonomous status and enjoys civil liberties not found in mainland Chinese cities, its military and foreign affairs remain under the control of Beijing. The People's Liberation Army maintains a land, sea and air garrison in the city. The Shandong is China's second aircraft carrier and the first to be entirely constructed domestically. It is smaller than its US counterparts, displacing 70,000 tonnes fully loaded and carrying 24 Shenyang J-10 fighter jets. In April, the carrier was dispatched for exercises in the eastern maritime and airspace surrounding Taiwan, a self-governing island that China claims as its own. A month later, the Shandong and China's first carrier, the Liaoning, carried out joint drills in the Pacific, beyond the so-called first island chain, in a show of increasing naval ambition. The Liaoning, a vessel purchased from Ukraine and refurbished, last visited Hong Kong in 2017. A third carrier with a flat-deck design is currently undergoing sea trials, while a fourth is under construction.
France 24
2 hours ago
- France 24
'You'll never walk alone': Football world mourns Diogo Jota
Papers are reacting to Trump 's "Big, Beautiful Bill", which he's set to sign this Friday, July 4, which is US Independence Day. The bill will cut major welfare programmes and add trillions of dollars to the national debt. The Washington Post calls it one of the most consequential and expensive economic legacies in modern American presidential history. The Wall Street Journal takes us through how the bill managed to pass the finish line. Trump used his executive authority to made deals to avoid the bill heading back to the Senate. He agreed to explore new tariffs on parts used in wind turbines in a bid to placate conservative Republicans who wanted greater limits on renewable energies. The Journal notes that his "vague promises and cajoling" paid off, with the House passing the bill on Thursday. It also underscores his iron grip on the Republican Party. In the conservative press, the Washington Times is hailing "big, beautiful wins." The sweeping tax cut legislation caps a "summer of victories" for Trump, it says. The National Review calls the bill's passage a significant conservative policy win that will make permanent the "meat of the Tax Cuts and Jobs Act of 2017", in reference to a bill passed during Trump's first term in office. The magazine celebrates a provision defunding planned parenthood from Medicaid but laments that it's pared back to just a one-year restriction. It does say, however, that the failure to get spending under control will come back to "haunt any Republican who wants to be remembered for helping bring our debt under control". In other news, Russia has acknowledged the Taliban as the government of Afghanistan, something a lot of the press is reporting on. The New York Times notes that Russia has become the first country to recognise the Taliban as Afghanistan's government, four years after the group seized control of the country. Russia's recognition is a "significant victory" for the Taliban, the paper says, reminding us that their draconian restrictions on women have made the country a pariah state. The Taliban moved to eradicate opium production in a bid to entice foreign partners, but its refusal on women's rights means it has stayed diplomatically isolated. Last year, China and India appeared to soften towards Afghanistan. The football world is mourning the loss of Diogo Jota, a Portuguese player and Liverpool forward. The 28-year-old and his brother André Silva were killed when the Lamborghini they were travelling in veered off the road in Santander, Spain. Jota was heading back for Liverpool's pre-season training. A Bola, the Portuguese sports paper, goes with a sober black and white photo of Diogo and André and their respective date of births. You'll never walk alone, reads the title in English – a nod to Liverpool FC's slogan. "Forever our number 20", the Liverpool Echo says in an edition featuring several pages dedicated to the footballer. The Guardian also focuses on the terrible accident on its front page. The pair were driving to Santander to catch a ferry back to England because Jota was advised against flying back to England after recent surgery. He had just recently married his partner and was a father of three. Finally, a new study has shown wild orcas appearing to present humans with gifts of food, but it's unclear if this is a gift or an attempt at manipulating us. The Times of London reports on the study which notes 34 examples of this behaviour in six different orca populations, from Norway to New Zealand. The orcas approached people in boats, in the water or on shore, and brought fish, bits of whale, birds, seaweed and even a turtle. They then usually hovered around waiting to see what would happen. In a few cases, the food was picked up, inspected and tossed back. The whales then retrieved and returned the gift. The results were published in a psychology journal and offer some theories about what this behaviour could mean: that the orcas were extending a flipper of friendship and nothing more. Or a darker, "Machiavellian" explanation: it was an attempt to attract a species of prey – us – and kill us but not eat us. With the word killer in their names, you'd be forgiven for being a bit suspicious!
