Deutsche Welle :
Earlier this month, Washington announced a new US-Vietnam trade deal, under which Vietnamese exports to the US will face a 20 per cent tariff, down from the threatened 46 per cent.
However, “transshipped” goods would be subject to a 40 per cent levy.
In international trade, this refers to goods that are shipped from the origin country to an intermediate location, only to be relabeled or tweaked and exported again to the final destination.
The US tariffs on transshipments are widely seen as a push to curb other countries’ economic relations with China.
For years, Beijing has been accused of re-routing goods through Southeast Asian countries before export to the US to dodge high tariffs.
This week, US President Donald Trump announced that he had also reached an agreement with Indonesia’s President Prabowo Subianto that would see the tariff rate on Southeast Asia’s largest economy drop from the previously threatened 32 per cent to 19 per cent.
Commenting on the Indonesia agreement on social media, Trump noted that “if there is any Transshipment from a higher Tariff Country, then that Tariff will be added on to the Tariff that Indonesia is paying.”
In April, Trump’s influential trade adviser Peter Navarro dubbed Vietnam “essentially a colony of communist China.”
“Vietnam sells us $15 for every $1 that we sell them and about $5 of that is just Chinese product that comes into Vietnam, they slap a ‘Made in Vietnam’ label on it and they send it here to evade the tariffs,” Navarro added.
In 2024, Vietnam imported $144 billion worth of goods from China and exported $136.6 billion worth of goods to the US.
The Vietnam agreement was the third trade deal the US president has reached, after deals with the UK and China.
Several Southeast Asian states reliant on exports to the US, such as Thailand and Cambodia, are racing to finalize terms before the new deadline of August 1 arrives.
Much depends on how Washington defines transshipment. In one scenario, Washington could use a narrow classification and apply it only to Chinese products imported into a country solely for relabeling and re-exporting to the US.
In other words, the more egregious cases involve Chinese goods being shipped into Southeast Asian ports, literally labeled as “Made in Vietnam” or “Made in Cambodia,” and then re-exported.
If this definition is adopted, analysts agree that it would have little impact on Southeast Asian countries, as they derive almost no financial benefits from these types of zero-value-added goods and are also interested in ending this practice.
Vietnam had already established new mechanisms to combat fraud and illegal transshipment before the US agreement was announced.
In May, Thailand’s Department of Foreign Trade announced that it would strengthen inspections for transshipment and expand the watch list of products at risk of circumvention from 49 to 65 to address US concerns.
However, Washington could also decide to be punitive and define “transshipment” as any good that contains a certain percentage of inputs and components from China. This could spell economic calamity for Southeast Asian nations.
Given that most Vietnamese-manufactured goods contain some percentage of Chinese inputs, a low threshold definition could mean that most exports are subject to the 40 per cent tariff rate, rather than the lesser and more internationally competitive 20 per cent.
Moreover, many US companies like Apple, Google, Nike and Gap with factories in Vietnam also still rely on Chinese inputs.
“If a Samsung phone assembled in Vietnam is comprised of 75 per cent imported components, is it a Vietnamese product?” pondered Zachary Abuza, a professor at the National War College in Washington.
“The Trump administration clearly wants to target China, but the reality is Vietnam is highly dependent on inputs from China for its manufacturing sector,” he told DW, adding that while Hanoi also wants to reduce this dependency, it cannot achieve that in a year or two.
Le Hong Hiep, a senior fellow at the ISEAS – Yusof Ishak Institute’s Vietnam Studies Program in Singapore, believes that a very broad definition of transshipment is not likely.
Vietnamese officials and US importers, as well as US multinational corporations with manufacturing operations in Vietnam, have strong incentives to oppose a strict or overly broad definition, he noted. He says that the US is targeting transshipments for two main reasons.
“Economically, they aim to gradually decouple China from the global economy, or at least from the Southeast Asian countries that maintain robust trade ties with Washington,” he told DW. “In the long run, this is expected to weaken China’s economy and constrain its rise.”
For instance, the threat of higher tariffs for transshipments will pressure Southeast Asian manufacturers to diversify their sources of inputs and components away from China.
The second objective, said Hiep, is to generate diplomatic tensions between Southeast Asian nations and China, especially if these countries comply with the US’ imposition of higher transshipment tariff rates.
“Such frictions may work to Washington’s advantage by strengthening its position in the ongoing competition with China for regional diplomatic and strategic influence,” said Hiep.
After the US and Vietnam reached an agreement earlier this month, Beijing responded by saying that Southeast Asian countries shouldn’t agree to terms that come at the expense of China.
“Should such a situation arise, China will never accept it and will take resolute countermeasures to safeguard its legitimate rights and interests,” a spokesperson for the Chinese Ministry of Commerce said at the time, according to the Reuters news agency.
It remains unclear what countermeasures Beijing had in mind, but an aggressive response could harm the interests of Southeast Asian states, including Vietnam, that are engaged in escalating territorial disputes with Beijing over the South China Sea.
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