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
Euronews
2 hours ago
- Euronews
US agencies altered health datasets in ‘gender ideology' crackdown
The Trump administration quietly altered massive US health datasets to remove any mention of gender, according to a new analysis. Scientists around the world rely on health data from US government agencies like the Centers for Disease Control and Prevention (CDC). But since President Donald Trump took office in January, these agencies have been altering data labels, mostly without disclosure, according to the investigation published in The Lancet, a leading medical journal. The authors argue that the 'hidden' changes could cast doubt on the integrity of American science. The database edits 'might be politically motivated and [are] not transparent,' Dr Aaron Kesselheim, a professor at Harvard Medical School, and Janet Freilich, a law professor at Boston University, said in the paper. Their analysis included 232 US health datasets that were edited from late January to late March, covering veterans' health care use, global tobacco consumption, stroke deaths, nutrition, exercise, and obesity. It did not include datasets that are updated on a regular basis. About half of these datasets were 'substantially altered' during the two-month period, but only 15 acknowledged that changes had been made, the study found. The parts of the datasets meant for these disclosures remained empty as of early May, the researchers said. In most of the edited datasets – 106 of them – the word 'gender' was swapped out for 'sex'. US agencies have not confirmed or explained the changes, but Freilich and Kesselheim suspect they were made to comply with a Trump order to remove 'messages that promote or otherwise inculcate gender ideology'. The executive order, issued on Trump's first day in office, said it aimed to restore 'biological truth' to US agencies, and set a national policy 'to recognise two sexes, male and female,' they said. It was part of a flurry of activity to clamp down on LGBTQ protections. Some data was initially removed from federal websites, but was largely restored due to a court order. The Lancet analysis indicates that not all changes were reversed. It is not clear if the actual numbers were altered, or only the labels about gender or sex. But Freilich and Kesselheim said the distinction is important because some people will respond to surveys differently based on each term. That can undermine the quality of the data and lead researchers to draw inaccurate conclusions, they said. They described the undisclosed changes as a 'crisis' that could make US data 'untrustworthy and unusable'. They called on governments elsewhere in the world to invest in other data sources.
France 24
3 hours ago
- France 24
Where do trade talks stand in the rush to avert higher US tariffs?
The levies taking effect July 9 were announced in April, with the White House citing a lack of "reciprocity" in trade relations. But they were swiftly halted, allowing room for talks. Days before their reimposition, where do things stand? EU: 'Ready' for deal The European Union said it is "ready for a deal" with Washington, with the bloc's trade chief meeting his US counterparts Thursday. European Commission president Ursula von der Leyen said the EU was targeting an "agreement in principle" when it came to the July 9 cutoff. With no deal, the US tariff on EU goods doubles from the "baseline" of 10 percent to 20 percent -- with Trump previously threatening a 50 percent level. Vietnam: A pact with uncertainties Washington and Hanoi unveiled a trade pact Wednesday with much fanfare and few details, but it allowed Vietnam to avoid Trump's initial 46 percent tariff. Under the agreement, Vietnamese goods face a minimum 20 percent tariff while products made elsewhere face a 40 percent levy -- a clause to restrict "transshipping" by Chinese groups. But there remain questions on how the higher levy would apply to products using foreign parts. There is also a risk that Beijing will adopt retaliatory measures, analysts warned. Japan: Rice, autos at stake Despite being a close US ally and major source of foreign investment, Japan might not escape Trump's tariff hike. Tokyo's trade envoy Ryosei Akazawa has made numerous trips to Washington through the end of June. But Trump recently criticized what he described as Japan's reluctance to open up further to US rice and auto exports. "I'm not sure we're going to make a deal," Trump said, adding that the country could pay a tariff of "30 percent, 35 percent, or whatever the number is that we determine." India: A good position Indian manufacturers and exporters want to believe they can avoid a 26 percent tariff. Negotiations between both countries have been going well for weeks, and Trump himself suggested at the end of June that a "very big" agreement was imminent. Ajay Sahai, director general of the Federation of Indian Export Organisations, said the feedback he received "suggests positive developments." But he maintained that the situation was fluid. Finance Minister Nirmala Sitharaman has stressed that agriculture and dairy products remain "very big red lines." South Korea: Muted optimism Seoul, which is already reeling from US tariffs on steel and autos, wants to avert a sweeping 25 percent levy on its other exports. Cooperation in shipbuilding could be a bargaining chip, but "at this stage, both sides still haven't clearly defined what exactly they want," said new President Lee Jae Myung on Thursday. "I can't say with confidence that we'll be able to wrap everything up by July 8," he added. Indonesia, Thailand, Taiwan in the wings Other Asian economies including Indonesia, Thailand and Cambodia, which faces a 49 percent tariff, wait with bated breath. Indonesia has indicated willingness to boost energy, agriculture and merchandise imports from the United States. Bangladesh meanwhile is proposing to buy Boeing planes and step up imports of US agriculture products. Taiwan, for whom Washington is a vital security partner, faces a 32 percent duty without a pact. Although both sides have faced bumps along the way, Taiwanese Vice President Hsiao Bi-khim said "negotiators from both sides are working diligently" to find a path forward. Switzerland: Hope for delay Switzerland's government said Washington has acknowledged it was acting in good faith, and assumes its tariff level will remain at 10 percent on July 9 while negotiations continue. But without a decision by the president as of the end of June, Switzerland did not rule out that levies could still rise to a promised 31 percent.
Fashion Network
4 hours ago
- Fashion Network
Trump aims to shut trade loopholes China uses to evade tariffs
'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.'
