President Donald Trump has threatened to pile an additional 40% tariff on any product that Washington determines to be “transshipped” through another country, a punishment aimed at stopping goods mainly from China dodging US duties.
That penalty was included in the White House announcement Thursday evening that laid out global tariff rates from 10% to 41%.
But many countries are still missing the “rules of origin” details necessary to determine what the US considers transshipped.
“It is still not clear how this will be implemented in practice,” Leah Fahy, chief economist at Capital Economics, said in a note Friday.
A decision on those rules will be made in the coming weeks, a senior US official said in Washington on Thursday. The US had earlier said the issue would be resolved before Aug. 1.
The details are particularly important for countries in Southeast Asia, such as Vietnam, which have emerged as key suppliers of goods to the US. Many of the firms and factories had shifted from China in response to Trump’s first trade war with Beijing and most still rely on Chinese inputs for production.
Thailand’s Deputy Minister of Commerce Chantawit Tantasith, for instance, said the country’s 19% tariff rate allows it to maintain a competitive edge, as it’s on par with Malaysia, Indonesia, Cambodia and the Philippines, and below Vietnam’s 20%. However, the transshipment issue is still unresolved.
“We must await further clarification from the US regarding the negotiation process and rules of origin,” Chantawit said Friday in a statement.
The country’s Finance Minister Pichai Chunhavajira said in a separate statement that local content should be more than 40% to be classified as a Thai product, but that the country hasn’t reached an agreement with the US on those details.
The unspoken target of the rule has been China, which Trump has blamed for abusing free-trade rules to hollow out American manufacturing and jobs with cheaper imports. Trump is set to make the final call on maintaining a tariff truce with China before it expires in two weeks.
Stephen Olson, a former US trade negotiator now with the ISEAS-Yusof Ishak Institute in Singapore, sees the transshipment issue complicating those talks.
“China will correctly perceive the transshipment provisions as directed against its interests,” Olson said. “And it will inevitably spill over into its ongoing trade negotiations with the US.”
Some analysts expect the punitive tariff to have little impact on China or the ability of its manufacturers to get goods to American buyers — directly or indirectly.
“Enforcement is likely to be challenging,” Fahy wrote. “Even if outright rerouting is reduced, trade diversion will continue to dampen the impact of US tariffs on China’s aggregate export performance.”
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