Trump Targets 'Transshipments' in Trade Negotiations. No One



Dow Jones NewsJul 9, 6:22 PM UTC
DJ Trump Targets 'Transshipments' in Trade Negotiations. No One Is Sure What It Means. -- Barrons.com

By Reshma Kapadia

 

The first batch of letters the Trump administration sent to trading partners this week set tariff rates -- and warned that levies would be higher for "transshipped" goods. But it isn't clear what would fall into this category, let alone how countries would enforce it.

 

The U.S. said it would levy a 20% tariff for exports from Vietnam, for example, compared with the 46% tariff proposed on April 2, and a 40% tariff on transshipped goods. The U.S. also said Vietnam agreed to open its markets to the U.S.

 

But analysts note that there were no formal filings with either the Customs and Border Patrol or the Federal Register, nor the type of joint statement that came after the deal with the United Kingdom.

 

"When you compare it to the U.K. deal, there is even greater confusion about what has been agreed to at this point," says Daniel Kritenbrink, a partner at the Asia Group who served as the ambassador to Vietnam in President Donald Trump's first term.

 

Kritenbrink describes "a lot of confusion and ambiguity" on both the Vietnamese and U.S. sides -- not just on the 40% tariffs on transshipments but also the 20% tariffs in the agreement the U.S. announced, with negotiations continuing to address these issues. The White House didn't immediately respond to a request for comment.

 

One big question is the administration's definition of "transshipping."

 

The practice of shipping, say, a Chinese television to Vietnam, slapping a label on it, and saying it is "made" in Vietnam, which allows China to evade tariffs or other restrictions, is widely accepted as illegal.

 

The White House has said it thinks 40% of Vietnam's exports are related to transshipping. But analysts say it isn't clear how the administration is defining the term. Analysts at TS Lombard caution the deal could still fall apart as details, especially around the transshipment duty, are ironed out.

 

Trade deals rely on "rules of origin" to determine how much transformation needs to occur in a country for a product to be deemed to be made there. This is typically determined through lengthy, complicated negotiations, and this definition appears to be a point of contention in negotiations.

 

It could also complicate discussions between the U.S. and China and other trading partners. China's direct trade surplus with the U.S. has fallen year-to-date through May, offset by a similar rise in its trade surplus with countries like Vietnam and Thailand -- which suggests China is relying heavily on transshipments, since demand from these smaller countries is unlikely to have spiked, according to Robin Brooks, an economist and senior fellow at the Brookings Institution.

 

Muddying the waters is that the U.S. has been pushing companies -- and countries -- to derisk from China, with many diversifying production to countries like Vietnam, the biggest destination, but also the Philippines, Laos, Thailand, and India.

 

Studies show that transshipment -- not the Vietnamese using some Chinese inputs but the actual relabeling and reshipping of Chinese goods -- is largely overestimated, says Mary Lovely, a senior fellow at the Peterson Institute for International Economics. Most of the increase in exports from China to Vietnam are supporting Vietnamese manufacturing, not transshipments aimed at tariff evasion, she says.

 

"Rerouting, or true transshipment, is done mostly by Chinese-owned companies operating in Vietnam. So finding firms engaged in this form of trade may be easier than it looks," Lovely adds.

 

Tinkering with the rules of origin has far-flung impacts for many companies, including retailers. "Supply chains have been built with current rules of origin, so if you go to a different definition, that could mean the fabric has to be made in country of origin, which means then you need mills," says Monica Gorman, managing director at Crowell Global Advisors, and a former White House and Commerce Department official focused on manufacturing.

 

Companies would have to rethink longer-term investments if rules of origin are altered, which could result in higher costs. Trying to push other countries to close a backdoor to China would also complicate already-fraught U.S.-China negotiations, analysts say.

 

Cracking down on transshipments could also increase the inflationary bite of tariffs. So far tariffs have served as a deflationary shock for big net exporters like China, since they restrain demand for their goods.

 

But Brooks says the size of the transshipments explains why the inflation hit from tariffs so far may be muted. The data suggest that U.S. consumers are still getting Chinese goods, albeit with a different travel pattern. "As the U.S. leans on transshipment hubs, the inflationary impact from tariffs is likely to build," he adds.

 

As discussions continue with Vietnam, as well as other trading partners, Kritenbrink says it's the relative tariff levels for other exporters in the region, including Indonesia and Malaysia, that will be most critical.

 

Write to Reshma Kapadia at reshma.kapadia@barrons.com

 

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

 

July 09, 2025 14:22 ET (18:22 GMT)

 
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