Source: YI CAI

Authors: Feng Difan

The US government announced on July 31 that, starting August 7, it would impose "reciprocal tariffs" ranging from 10% to 41% on multiple countries and regions. Any country or region found to be circumventing tariffs by transshipping goods through a third location will face a 40% transshipment tax. The New York Times reported on the 4th that the new rules apply to any country, not just China. However, China, with its vast factory infrastructure and immense manufacturing ambitions, has become the primary nation establishing such global transshipment networks and will be the most affected. On the 5th, multiple interviewees told the Global Times that China and Southeast Asia have complementary economies and tightly integrated industrial chains, making it impossible for US transshipment tariffs to achieve "decoupling." Chinese companies are also actively responding to US tariff pressures.

Lack of Detail Leaves Policy Implementation Vague

A relevant official from a re-export trading company with a branch in Malaysia explained to a Global Times reporter: "Actually, starting May 6, Malaysia tightened its re-export trade policies, making it very difficult to obtain Certificates of Origin. Without these certificates, goods face higher hurdles entering the US market, significantly increasing the difficulty for related companies to develop the US market and consequently reducing the number of clients."

This official further stated that starting August 7, the US would strengthen supervision of re-export trade. This means goods merely transshipped through a third country (like Malaysia) without undergoing substantial local production will be deemed by the US as "tariff evasion," incurring the 40% transshipment tariff. Pure re-export trade will face greater pressure.

"However, goods produced in factories in Malaysia that comply with rules of origin are not considered re-exports and will not be affected; they would be subject to the 19% tariff," he said. He also noted that the definition of the so-called transshipment tariff effective August 7 remains somewhat vague, and it is unclear how it will be implemented specifically.

Jian GUAN, a partner at Beijing Grandwin Law Firm, told the Global Times that "transshipment tariff" is not a standard or commonly used customs trade term, and the US government has not yet provided a clear definition, leaving policy implementation ambiguous. Transshipped goods could potentially refer to products from a third country that undergo only minimal processing, are labeled with that country's origin, and then enter the US. Alternatively, it could include products that use local raw materials, undergo varying degrees of processing and assembly, and obtain a Certificate of Origin. Guan further explained that, using Vietnam as an example, the rules for obtaining a Certificate of Origin are very complex. Ultimately, it depends on the US definition, making it extremely difficult to define what exactly constitutes a transshipped product.

"The US has been promoting unilateral tariff policies in recent years, making global supply chains increasingly complex. For US Customs, verifying whether massive volumes of imported goods meet requirements is not only a heavy workload but also technically challenging, creating multiple difficulties in policy enforcement." Jian GUAN believes that without further detailed announcements from the US, the impact of the transshipment tariff on companies, especially Chinese ones, remains difficult to assess.

Unable to Decouple China from Southeast Asia

The New York Times reported on the 5th that cracking down on re-export trade would severely impact China's Southeast Asian neighbors, as the region relies heavily on Chinese raw materials and components, and Chinese investment has helped fuel their faster economic growth. The article cited Malaysia's solar industry, noting that over 75% of the solar panels used domestically are imported from China. In the long run, Malaysia wants Chinese companies to restart factories idled there due to US tariffs to produce solar panels for its domestic market.

"The US attempt to force Southeast Asia to 'decouple' from China using tariff policies is practically impossible because the industrial chains of China and Southeast Asia are already tightly integrated," Jian GUAN said. "We have many corporate clients in Southeast Asia's electronics and new energy sectors. According to their feedback, many of these companies' production processes rely heavily on China. Even considering tariffs, it's difficult for Japan or South Korea to replace China in terms of cost and efficiency."

The BBC, quoting Nguyen Khac Giang, a visiting scholar at the Vietnam Studies Programme of Singapore's ISEAS – Yusof Ishak Institute, reported that Southeast Asia's deep entanglement with China makes diversifying its supply chains "easier said than done." For Southeast Asian countries, maintaining close ties with the world's second-largest economy is also natural, given their proximity. Lim Hock Yeam, a professor at Universiti Utara Malaysia, stated that looking ahead, Southeast Asian countries will still need China as a reliable trading partner, as the US has proven unreliable and full of uncertainty. He said, "ASEAN countries must ensure deeper integration with China's supply chains, not just mere 'transshipment.' This benefits both ASEAN and China and reduces economic dependence on the US."

Multiple Pronged Approach: China's Active Response

During the interview, Jian GUAN expressed a viewpoint to the Global Times: the US transshipment tariff policy is already in place. Although details are vague, Chinese companies will eventually have to face it and should prepare in a timely manner.

A domestic consumer electronics company, headquartered in Shanghai and listed on the main board of the Shanghai Stock Exchange, has already established three major overseas manufacturing bases in Vietnam, India, and Mexico. A staff member from this company told the Global Times that in 2024, the company achieved large-scale mass production and delivery in India and Vietnam, and its Mexican manufacturing base was also advancing towards mass production. They stated that overseas布局 is a strategic arrangement for the company's development and effectively hedges against tariff impacts. The reporter learned that the company's Vietnam base shipped nearly one million units per month last year and has established a local supply chain support system. The aforementioned staff member said that the globalized, diversified product布局 continuously enhances the company's ability to withstand risks.

Shanghai Daimay is also a listed company, primarily engaged in the R&D of passenger car components, with a production base in Mexico. A Global Times reporter noted on an investor interaction platform that a securities affairs staff member from the company stated that products exported from Mexico to the US comply with the USMCA and are not subject to tariffs, thus remaining unaffected by current tariff policies.

Yang Lihua, General Manager of Shenzhen Chuwe Innovation, told the Global Times that at its peak, the US market accounted for about half of the company's business. However, with continuous efforts to diversify overseas markets in recent years, the US market share has dropped to 15%. Currently, Yang Lihua is still working hard to develop more overseas markets, with countries involved in the Belt and Road Initiative and BRICS nations becoming key focuses.

Jian GUAN believes that going global is an inevitable stage in enterprise development. Setting up factories in countries that have trade agreements with the US can effectively circumvent relevant US tariffs. Beyond this, Chinese companies should further diversify their overseas market布局, for example, by strengthening cooperation with Belt and Road partner countries. Simultaneously, they should increase independent R&D, enhance the security and controllability of their industrial chains, and further improve production efficiency to maintain a competitive market advantage.