Vietnam, explained.
A plastics factory in Vietnam (Adam Cohn/Flickr CC BY-NC-ND 2.0)
Ill-defined enforcement and geopolitical realities may see Washington’s measures favour Beijing over Hanoi.
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In Vietnam’s case, what, exactly, is the target of Trump’s “transshipment” tariffs?In Vietnam’s case, what, exactly, is the target of Trump’s “transshipment” tariffs?
US President Donald Trump’s policy on Beijing’s “transshipments” – Chinese products rerouted through third countries to avoid high tariff dues – appears ill-conceived in practice. The administration has yet to provide a clear definition for “transshipment,” even as it imposes 40 percent levies on goods rerouted through Vietnam, for example – double the 20 percent charge on Vietnamese products.
At its worst, Trump’s transshipment duties could undo hard-won gains from his first trade war and surrender leverage to China in imminent tariff negotiations. They may discourage imports from China’s competitors, bolstering Beijing’s hold on the US market.
Transshipments are infamously difficult to measure and distinguish from legitimate exports.
The White House claims roughly a third of Vietnam’s exports to America are transshipments from China. For every $15 of goods that Vietnam sells the United States, Trump trade adviser Peter Navarro insists, “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.”
It’s nearly impossible to confirm whether a product is transshipped without detailed records – which many firms in Vietnam lack.
In practice, however, estimates on transshipments vary. After Trump’s first trade war in 2018, researchers at Harvard found the proportion to be anywhere from 15.7 percent to 41.7 percent. They concluded that US tariffs on China spurred an influx of Chinese companies acting as transshipment proxies into Vietnam.
Since Trump announced his reciprocal tariffs in April, these transshipments have likely increased even more. But this has been hard to quantify.
One key reason is that transshipments are typically defined as goods lacking a “substantial transformation” in their final destination before export. In Vietnam’s case, this usually requires at least 30 percent of a finished product’s value be generated locally to qualify for a “Made in Vietnam” label.
The Trump administration, however, won’t disclose its definition of transshipment. Recent policy indicates that Trump may adopt a broader definition for Vietnam, which could threaten large chunks of its exports with exorbitant tariffs. This is because Vietnamese exports are uniquely reliant on cheap Chinese imports, often adding less value locally to stay competitive with Chinese counterparts.
Usually, anti-transshipment compliance takes years to manifest through legal enforcement and best practices incubated in the private sector. Without adequate time for development, US companies are left bearing the risk that their imports will be steeply taxed as transshipments. Worse yet, it’s nearly impossible to confirm whether a product is transshipped without detailed records – which many firms in Vietnam lack.
Ironically, the transshipment tariff might help Beijing. Pending ongoing trade negotiations, tariffs on China will stay below the rate for transshipments. This means that US importers may find it cheaper to buy directly from China, rather than risk high premiums on Vietnamese goods. If the Trump administration applies an overly broad definition of transshipment and rushes enforcement, Beijing would likely outcompete its competitors for US imports. This would undo years of Vietnamese gains in the US market, which has reduced reliance on China.
As Hanoi’s exports to the US increase, Vietnamese companies consume more imports of raw materials and components from China. More bilateral trade also correlates with a rise in transshipments routed through Vietnam, which are included in aggregate imports from China. So how can increases in legitimate imports get disentangled from transshipments? This is where researchers disagree.
Academics and policymakers lack a universal method to calculate transshipments. The Trump administration uses aggregate trade data, which often overshoots findings by conflating transshipment with legitimate drivers of import growth from China. Academics sometimes take industry, product or even firm-specific metrics, which takes far more time and often use incomplete data that can undershoot estimates.
For the manifold issues concerning practical feasibility, lingering geopolitical barriers threaten the US tariff policy more fundamentally. Vietnam has long conducted a policy of balancing Washington and Beijing. If a dispute emerges, China holds considerable leverage over the Vietnamese economy and can easily cripple Hanoi given enough motivation. Despite Vietnam’s recent deal with Washington, Hanoi is undoubtedly looking to assure Beijing that this agreement won’t threaten its interests.
This severely complicates anti-transshipment enforcement. What happens when Vietnam begins arresting or shutting down transshippers – which are primarily Chinese companies? At what point will China retaliate against Hanoi’s anti-transshipment measures targeting its trade?
Navarro, the trade adviser, accused Hanoi of abetting transshippers. This may be true. Not because transshipment is vital to Vietnam’s economy (repackaging employs relatively few Vietnamese), but because cracking down bears a clear geopolitical cost. With Beijing at its doorstep, Hanoi might be unwilling to tip the scales toward Washington.
This reveals an uncertain future for the Trump administration's policy. The White House aims to simultaneously eliminate transshipment, encourage Vietnamese trade at the expense of China and negotiate an unprecedented trade deal with Beijing. All the while, Washington’s implementation remains confused and muddled, leaving partners with more uncertainty than opportunity.
Making this arrangement work is going to be an uphill battle. Trump will have to slow down and spend time clarifying his policy. He must develop compliance mechanisms with Hanoi and learn to accommodate Vietnamese geopolitical sensitivities. This takes a careful balancing act that will test Trump’s limited patience.
Is he ready to wait?
About the author
Jackson Lopez
Jackson Lopez is a geopolitical analyst for the Sri Lanka-based Regional Centre for Strategic Studies, writing from Ho Chi Minh City, Vietnam.
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