The main thing to note is that any goods from Vietnam entering the US will be slapped with 20% tariffs. That’s double the current blanket 10% tariffs but way better than the supposed 46% tariffs initially touted back in April. And that’s really about it. Oh, but what about the 40% tariffs on trans-shipment? Aren’t you forgetting about that? The thing to remember here is that trans-shipping and origin washing are two very distinct things. And China has been engaging with the latter, not the former.

Trans-shipping is a very common thing in the import-export business. Anything and everything that goes through another port before reaching its original destination is basically trans-shipping. So, yes. China has been engaging in some of that in trying to circumvent US tariffs. However, the moment the goods hit US ports and they are labelled as “Made from China” they will still be slapped with China tariffs; not Vietnam and not whatever country that it is involved in the trans-shipment.

So, the thing to be aware of here is that China has been engaging with origin washing for the most part to bypass US tariffs altogether. And that is a totally different practice.

I’ve noted previously here how China has been increasing exports to the likes of Vietnam in preparation for this exact scenario. And it couldn’t have played out better.

The thing about origin washing is that when a product goes through “substantial transformation” in the intermediate country, it then is able to classified as being made in that country. In essence, the idea here is to alter its form or appearance just enough to change the country of origin of the product. And that is what China has been working on for many years now.

Think sending raw materials such as wool, fiber, yarn, and cotton to Vietnam and then only being converted into clothes and apparel.

If firms had sent ready-made shirts from China to Vietnam and then to the US, they’d be slapped with both US tariffs and now the trans-shipping tariffs. But to circumvent that, they’re sending raw materials from China to Vietnam to be sewn into shirts and repackaged as being “Made in Vietnam” before being sent to the US.

This is just one example of that. The thing is China is not only engaging in textiles but also electronics. Even BYD has set up a new facility in Vietnam.

Sure, it’s not the most efficient thing and may not work for everyone. However, this is how some Chinese companies are looking to find an edge to stay competitive in light of the trade war between Washington and Beijing.

The main issue here is that China has to shift production and manufacturing to a different country, relying on foreign labour and a different network of supply chains. But the thing to remember here is that China has been laying out the groundwork for many years now in preparation of this, even before Covid. And it is one that will only continue to grow in time.

So, yes. Trump’s deal with Vietnam may look like he’s done what is needed to stop China from “cheating” the system. But if you take a closer look, it isn’t going to change things all too much as Chinese firms who are rerouting through Vietnam are already one step ahead.

This article was written by Justin Low at www.forexlive.com.