Trump’s New 40% Tariff on China: What It Means for Global Trade and Your Business Strategies
Since President Donald Trump began imposing tariffs on Chinese goods during his first term, Chinese companies have rapidly established warehouses and factories in Southeast Asia, Mexico, and other regions. This strategy aimed to bypass US tariffs by routing shipments indirectly through these countries to the American market.
However, on Thursday, Trump expanded his focus to all indirect imports into the US, blaming them for part of the $1.2 trillion American trade deficit. He implemented 40 percent tariffs on so-called transshipments, effective within a week. A senior administration official indicated that efforts are ongoing to broaden the definition of indirect shipments significantly.
Unlike previous measures targeting China alone, the new tariffs apply to indirect shipments from any country. Still, China—with its vast manufacturing infrastructure and global supply network—is expected to be the most affected and likely the most aggrieved. Stephen Olson, a former US trade negotiator and current senior fellow at Singapore’s ISEAS-Yusof Ishak Institute, described the move as “a thinly veiled attempt to box in China,” warning it could intensify tensions in US-China trade talks.
Trump’s executive order introduced a new import category: goods transshipped through other countries without substantial transformation. The 40 percent tariff will be added on top of any existing duties applicable if the goods were imported directly from their country of origin.
The official legal definition of transshipment involves goods that have not undergone substantial processing or transformation in the intermediary country. Countries like Vietnam, a significant hub in Southeast Asia, have long denied widespread allowance of transshipment and have increased inspections to combat it. They assert that many products assembled from Chinese components are genuinely manufactured locally and rightly labeled as made in their country, not China.
In addition to the 40 percent tariffs, the Trump administration plans to introduce strict rules of origin for indirect shipments within weeks. These rules are designed to verify the actual manufacturing origin of imported goods. For example, the US-Mexico-Canada Agreement requires up to 75 percent of a vehicle’s content to be North American for duty-free treatment.
Brad Setser, a Council on Foreign Relations senior fellow and former official under the Obama and Biden administrations, believes these rules of origin could have a profound long-term impact by clearly defining Chinese content in supply chains.
However, some experts doubt the Trump administration will enforce stringent rules, especially with a potential summit between Trump and Chinese President Xi Jinping being considered this autumn. China has demanded tariff removals and tightened restrictions on American goods in retaliation.
Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore, noted that current proposals avoid targeting content from specific countries, which might be a strategic move to avoid antagonizing China excessively at this stage.
The first explicit country-specific measure addressing transshipment came with a trade deal signed on July 2 with Vietnam, including a 40 percent tariff provision for Chinese goods shipped indirectly. This provision appears to be a blueprint for broader efforts to restrict China’s role in global supply chains. Yet, Vietnam has not publicly confirmed this clause, and similar tariff measures have not been included in deals with other Southeast Asian countries, except Indonesia.
Recently, Trump has softened his rhetoric towards China, easing restrictions on AI chip exports and indicating a more tolerant stance on other nations’ relationships with China. This shift has created uncertainty and skepticism among Southeast Asian countries, which have worked hard to accommodate US demands since the initial tariffs were announced.
Despite the turbulence, many Southeast Asian governments have intensified efforts to curb Chinese companies that reroute exports through their territories without significant processing. They have streamlined customs, cracked down on counterfeit and illegal trade, and considered methods to reduce Chinese content in their exports.
Multinational corporations like Walmart, which account for a large share of US imports, typically have detailed knowledge of their supply chains. Yet, there are doubts about the US Customs and Border Protection’s ability to reliably verify the true origin of shipments.
Capital Economics, an economic consultancy, concluded: “Enforcement is likely to be challenging, and even if outright rerouting is reduced, trade diversion will continue to dampen the impact of US tariffs on China’s aggregate export performance.”
Image caption: Workers at a clothing factory in Ho Chi Minh City, Vietnam, where 60 percent of fabrics used in manufacturing come from China. — The New York Times
Special Analysis by Omanet | Navigate Oman’s Market
The new US tariffs on indirect imports, particularly targeting China’s transshipment strategies, signal a tighter global trade environment that Oman businesses must navigate carefully. For Omani entrepreneurs and investors, this creates an opportunity to position Oman as a transparent, compliant manufacturing and export hub, reducing reliance on Chinese content to attract more US-bound trade. However, the complexity and enforcement challenges of these tariffs also pose a risk of supply chain disruptions and increased costs for exporters linked to Chinese inputs, requiring smart diversification and supply chain resilience strategies going forward.
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