China’s Trade Tightening: A Game Changer for Vietnam’s Manufacturing?
As former U.S. President Donald Trump continued to expand the network of tariffs, including an additional 10% tariff on imports from China, industry experts emphasized that closing loopholes and preventing tariff evasion tactics were crucial to ensuring the effectiveness of trade policies.
These new tariff policies did not just impact Chinese businesses but also had far-reaching consequences on other economies, particularly Vietnam—an emerging manufacturing hub that has become an alternative to China in the global supply chain.
Tariff Evasion by Changing Country of Origin
One of the most common tactics used by Chinese companies—and others—to avoid tariffs is transshipment, where goods are shipped through an intermediary country before being relabeled from "Made in China" to another origin. While this strategy has existed for years, it has become a growing concern as the United States intensifies its trade protection policies against China, imposing stricter tariffs and trade restrictions. As a result, companies seeking to bypass these tariffs have increasingly turned to third-party nations, complicating efforts to enforce fair trade regulations.
A notable case highlighting this issue involves Berwick Offray, a ribbon manufacturer based in Pennsylvania. Known for its commitment to U.S.-based production, the company is one of the world’s largest producers of ribbons and actively competes with low-cost imports. Recently, Berwick Offray filed a lawsuit against TriMar Ribbon, a U.S. importer, accusing it of purchasing ribbons from Chinese manufacturers but routing them through India to disguise their true origin and evade tariffs. This case has drawn attention to how importers may exploit loopholes in the system to gain a competitive advantage over domestic manufacturers who adhere to tariff regulations.
According to the U.S. Customs and Border Protection (CBP), TriMar Ribbon was found to have imported goods from China via India without properly declaring their country of origin. This violation falls under broader concerns about transshipment fraud, which has become a major focus of U.S. trade enforcement agencies. The CBP has confirmed that it is currently investigating 221 cases of suspected tariff evasion involving Chinese-made products that are being rerouted through third countries, including Thailand, India, and Canada, before entering the U.S. market. These investigations reflect the growing complexity of global supply chains, where companies leverage transshipment not only to reduce costs but also to navigate increasingly strict trade policies.
The impact of transshipment fraud extends beyond the United States. Intermediary countries, such as Vietnam, are also finding themselves entangled in this issue. As the U.S.-China trade war pushes manufacturers to shift production out of China, Vietnam has emerged as a key destination for companies looking to set up new factories. However, with this influx of investment comes the challenge of ensuring that Vietnam is not merely being used as a stopover for Chinese goods disguised as locally produced products. This growing concern has led to increased scrutiny from both the U.S. and Vietnamese authorities, as they seek to prevent Vietnam from becoming a hub for transshipment schemes that undermine legitimate trade.
As global trade tensions continue, the battle against tariff evasion through transshipment is likely to intensify. Policymakers and trade enforcement agencies will need to adopt stricter monitoring measures, while companies will have to navigate an increasingly complex regulatory landscape to maintain compliance.
Stricter Tariff Enforcement
In early February, the Trump administration imposed a 10% tariff on all Chinese imports as part of its broader effort to address trade imbalances and curb what it viewed as unfair trade practices. By March 4, this tariff was raised by an additional 10%, bringing the total tariff to 20%. In tandem with these measures, the administration intensified its crackdown on tariff evasion tactics, aiming to close loopholes that allowed Chinese goods to bypass duties through transshipment or misclassification. Meanwhile, the U.S. Congress took parallel steps to strengthen trade enforcement and prevent Chinese products from circumventing tariffs through third countries.
On January 31, Senator Rick Scott introduced the Stopping Adversarial Tariff Evasion (SATE) Act, designed to reinforce existing enforcement mechanisms and ensure that foreign manufacturers comply with U.S. tariff and customs regulations. This legislation seeks to grant U.S. authorities greater oversight in detecting and penalizing companies engaged in trade fraud. Similarly, Representative Ashley Hinson put forth a separate bill focused on the creation of a dedicated task force to monitor and combat tariff evasion schemes, signaling bipartisan concern over the issue.
Experts have weighed in on the potential implications of these policies. Jayant Menon, a specialist at the ISEAS-Yusof Ishak Institute in Singapore, emphasized that if Donald Trump were to secure another term in office, the U.S. could implement even stricter monitoring measures to verify the origin of imported goods. He cautioned that countries suspected of facilitating tariff evasion—whether intentionally or inadvertently—could face additional trade restrictions, further complicating global supply chains.
Echoing these concerns, Daniel Pickard, an international trade lawyer at Buchanan Ingersoll & Rooney, pointed to a rising number of investigations into tariff evasion through transshipment. He noted that U.S. Customs and Border Protection (CBP) is likely to intensify its enforcement efforts, expanding its scrutiny beyond individual corporations to take action against entire countries suspected of enabling such practices. Pickard warned that in addition to levying fines and penalties on businesses found guilty of circumventing tariffs, the U.S. could introduce broader trade barriers that target specific nations or regions, escalating trade tensions further.
SOURCE: BBC NEWS
With these developments, businesses engaged in international trade face increasing uncertainty, as regulatory oversight tightens and geopolitical factors continue to shape global commerce.
Impact on Manufacturing in Vietnam
Vietnam has emerged as a crucial player in the global manufacturing landscape, especially as companies look to diversify their production bases away from China due to rising U.S. tariffs. This shift has positioned Vietnam as an attractive alternative manufacturing hub. However, with the increased scrutiny from U.S. Customs and Border Protection (CBP) to prevent tariff evasion, the manufacturing sector in Vietnam faces several challenges that could impact its ability to maintain its competitive advantage.
Challenges Faced by Manufacturers in Vietnam
Stricter Origin Controls: As part of efforts to curb tariff evasion, the U.S. has increased its focus on verifying the origin of products. Manufacturers in Vietnam may face heightened scrutiny and will be required to provide clearer proof of the product's origin to demonstrate that they are not acting as intermediaries for Chinese goods trying to bypass U.S. tariffs. This could involve more complex documentation and verification processes, creating potential delays and complications in international trade.
Higher Compliance Costs: In response to the tightening of tariff regulations, manufacturers in Vietnam will likely face higher compliance costs. These expenses could arise from the need for additional inspections, certifications of origin, and the implementation of stricter customs procedures to prove that their products are genuinely made in Vietnam and not merely transshipped from China. For smaller businesses, this added cost burden may be particularly challenging.
Risk of Additional Tariffs: If the U.S. discovers that goods originating from China are being routed through Vietnam to evade tariffs, there is a real risk that Vietnam could face additional trade restrictions similar to those imposed on China. This could negatively affect Vietnam’s manufacturing sector, potentially leading to tariffs on a wider range of products and decreased access to key export markets, including the U.S.
Opportunities for Foreign Investment: Despite the challenges brought on by U.S. tariff policies, there are still significant opportunities for Vietnam to attract foreign investment. To mitigate the risks of tariff evasion, foreign companies are increasingly looking for legitimate manufacturing facilities in Vietnam, not just as a transshipment hub. By establishing genuine production operations in Vietnam, these companies can benefit from favorable trade agreements and lower production costs while adhering to international trade standards.
What Vietnamese Businesses Should Do
In light of the increasing scrutiny and shifting trade policies, Vietnamese manufacturers must take proactive steps to safeguard their position and mitigate the risks associated with tariff evasion. Here are several strategies to consider:
Build a Transparent Supply Chain: Manufacturers in Vietnam must ensure that their supply chains are fully transparent and traceable. This involves providing clear evidence that the products are genuinely produced in Vietnam and not simply re-exported from China. Strengthening relationships with local suppliers and manufacturers is key to maintaining this transparency and avoiding any suspicion of tariff circumvention.
Ensure Clear Origin Certification: Vietnamese exporters must work closely with customs authorities and international trade partners to ensure their origin certifications are accurate and compliant with international standards. This will help avoid delays at customs and protect their reputation in global markets. Establishing a strong relationship with customs officials can help ensure smoother trade processes.
Leverage Trade Agreements: Vietnam can take advantage of its participation in trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA) to expand its export markets. These agreements provide Vietnamese manufacturers with preferential tariff rates and reduced trade barriers, enabling them to diversify their export destinations and reduce their reliance on the U.S. market.
Enhance Production Quality: To further differentiate itself, Vietnam should focus on enhancing the quality of its products. While the country has established itself as a low-cost manufacturing hub, it must now position itself as a reliable and high-quality manufacturing destination. By focusing on premium production standards, Vietnamese manufacturers can attract international clients seeking not only low-cost production but also top-tier quality and reliability.
The tightening of U.S. tariffs and the increased focus on tariff evasion have profound implications for Vietnam's manufacturing sector. Although these changes pose significant challenges, they also present opportunities for the country to solidify its position as a leading manufacturing hub. By adapting to the evolving international trade landscape, maintaining transparent supply chains, leveraging trade agreements, and focusing on production quality, Vietnamese businesses can continue to thrive in the global supply chain despite the changing dynamics of international trade policies.
Looking for producing garment in Vietnam?
VinMake is a tech-enabled factory network revolutionizing fashion production, connecting global brands with cutting-edge manufacturers in Vietnam. With a network of over 300 garment factories in Vietnam, VinMake has delivered millions of fashion products for global brands.
READ MORE
