President Donald Trump’s proposed trade deal with Vietnam is designed to block the clever ways Chinese companies avoid US tariffs. The plan introduces a two-level tariff: a 20% tax on goods genuinely made in Vietnam and a steeper 40% tax on products suspected of being shipped through Vietnam just to hide their Chinese origin.
The full details of the agreement haven’t been released yet, but much will depend on how US officials decide what counts as truly ‘Made in Vietnam’ and what is simply being rerouted. That’s a tough call. Chinese firms have increasingly moved their manufacturing to Southeast Asia. Vietnam, in particular, has become a major player in this strategy. Many of its exports to the US—like smartphones and AirPods—use Chinese parts but are assembled in Vietnamese factories. That’s legal under current rules.
Whether the new tariffs work will depend on how precisely they’re enforced. “If the 40% tariff only applies to clear cases of transshipment, it should be manageable,” Roland Rajah, Chief Economist at the Lowy Institute in Australia told Bloomberg. “But if the US uses a broad approach, it could hurt everyone—China, Vietnam and US consumers who will pay higher prices.” His group estimates that nearly 30% of Vietnamese exports to the US in 2022 used Chinese materials—triple the amount from 2018.
Pham Luu Hung, an Economist in Hanoi, said that in 2021, only about 16.5% of Vietnam’s exports to the US were actually rerouted Chinese goods. That number may have fallen since then due to stronger crackdowns. But Hung pointed out that the real game-changer could be how new rules define where a product is truly from—not just how high the tariffs are.
Many experts doubt the new deal will stop transshipments entirely. “It all depends on the fine print,” said Duncan Wrigley of Pantheon Macroeconomics. He thinks China will keep moving goods through other countries or do just enough processing in Vietnam to qualify the goods as locally made.
Recent trade data supports this idea. Citigroup economists report a sharp rise in Chinese exports to Southeast Asia—especially Indonesia, Malaysia, Thailand and Vietnam—which matches a surge in exports from those countries to the US. Derrick Kam of Morgan Stanley said this likely reflects real supply chain shifts, not shady practices. “It might look like cheating, but it’s actually global manufacturing adapting,” he said.
Still, questionable rerouting of goods remains a top concern for Trump’s trade allies, such as former adviser Peter Navarro, who recently called Vietnam “a colony of communist China.” In Indonesia, local factories say they’ve been approached by Chinese firms offering to slap “Made in Indonesia” labels on Chinese products with little or no extra work.
Some don’t even bother with local processing. “Sometimes the T-shirts come from China with Indonesian labels already sewn in,” said Redma Gita Wirawasta of Indonesia’s fibre producers group. “They don’t even take the goods out of the container. Unloading costs extra.”
For Chinese exporters, the appeal is obvious. Under Trump’s new deal, paying a flat 10% tariff by rerouting through Southeast Asia is far cheaper than the 50% or more that’s typically levied on direct shipments from China—even after recent reductions. But enforcement is weak, making this kind of workaround hard to stop.
Gabriel Wildau of advisory firm Teneo says Chinese companies are skilled at exploiting legal gray areas. “They’re good at inflating how much value is added outside China,” he said. As Vietnam faces more scrutiny, businesses could shift these tactics to places like Cambodia, Thailand, Singapore—or even further afield to Turkey or Poland.
Governments in the region are under growing pressure to act. Vietnam has made public efforts to fight trade fraud. South Korea recently seized over US $ 20 million worth of goods with fake origin labels, most heading to the US. In May, Malaysia’s freight association warned about Chinese middlemen offering illegal rerouting services on social media.
In response, Malaysia is tightening export certification rules, Thailand is expanding its list of high-risk products and considering stronger penalties and Cambodia is increasing inspections. Some factories exporting to US retailers like Walmart and Home Depot are already seeing longer wait times and stricter checks.
But enforcement varies. In Indonesia, getting a certificate of origin is often as easy as submitting a product list and a letter to the local trade office. Factory inspections are rare. “Officials focus more on imports,” Wirawasta explained. “They don’t really check where exported goods were actually made.”
These gaps leave plenty of room for questionable behaviour. Without clear definitions and more funding for US customs inspections, experts warn that Trump’s new trade deal could end up being mostly symbolic. Wildau said that if the rules stay vague, this agreement could sound tough—but mean very little.
