Lawyers: 40% Rate for 'Transshipped' Goods Could Hit All Chinese Inputs
Harris Sliwoski, an international law firm, published a blog post noting that the mention in the Vietnam trade deal framework of 40% tariffs for "transshipped" goods from Vietnam is designed to reduce China's role in supply chains.
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The firm wrote on its long-standing China Law Blog: "One of the most pressing questions now is: How much Chinese content makes a product 'Chinese' in the eyes of U.S. Customs?"
Traditionally, transshipped goods are subject to the tariff rate of a product originating in the country of origin, such as China, not a higher rate under the country that falsely claimed origin.
The blog cites unnamed trade analysts who "expect the U.S. government to apply a near-zero-tolerance standard -- possibly flagging goods with as little as 1 percent Chinese-origin content."
They wrote in bold: "This means a single Chinese-sourced chip, zipper, or motor could trigger the 40 percent transshipment tariff on your entire product."
They said their clients are contemplating or adopting measures such as shipping Chinese components separately from Vietnamese sub-assemblies; doing final assembly in the U.S. or Mexico, if Mexican assembly can create Mexican origin and USMCA status; and finding components from India, Eastern Europe, Latin America or Taiwan to replace Chinese components.
Think tank analyst emeritus Bill Reinsch, at the Center for Strategic and International Studies, also wrote that the 40% rate could be important, and "is designed to prevent China from circumventing the tariffs placed on it. Its effectiveness will depend on how transshipment is defined, on how the provision is enforced, and on whether the administration can impose the same provision on other countries. If they can’t do that, then they’re just playing whack-a-mole as Chinese companies migrate from country to country. These questions cannot be answered without the text, but rumors suggest the agreement is more of a loose aspirational framework than Trump is saying."
Reinsch also said the U.K. deal is 80% aspirational and 20% tangible.
Reinsch noted that Trump has been going on rants about other countries' policies, such as Japan's protectionism on rice, and Canada's digital services tax. He threatens higher tariffs (or to stop talking, in Canada's case).
"There are two ways to interpret this pattern. The first is that it demonstrates Trump’s normal negotiating style -- large demands, big threats, and impatience for an outcome. The second is that it reflects increasing desperation about prospects for more deals."