Whether you agree or disagree with President Trump’s policies regarding tariffs, you have to appreciate the sheer genius of businessmen. They’re going to make money any way they can. If they’re not making enough of a profit, they’ll get around their obstacles. That’s exactly what some crafty Chinese exporters have done to get around Trump’s tariffs on their country.
The scheme? To slap “Made in Vietnam” labels on their Chinese goods. It’s sort of brilliant when you think about it. At least, until you get caught. Vietnam said this week that they found dozens of fake certificates and illegal transfers from Chinese companies trying to get around the tariffs. These products include everything from steel to agriculture and textiles.
Earlier this year, President Trump slapped a 25% tariff on $250 million worth of Chinese goods after trade talks have stalled. He’s currently threatening another $300 billion if the government doesn’t come back to the negotiating table in good faith. Not only does Trump feel like the balance is weighed heavily in China’s favor, but they’ve been caught stealing intellectual property. This doesn’t sit well with the president who has been calling out the country since his campaign.
“It’s always a cat-and-mouse game,” said Fred Burke, managing partner at law firm Baker & McKenzie (Vietnam) Ltd. “As long as people are willing to take risks in search of those arbitrages of say 25 percent duties, it’s very difficult to enforce.” Now Vietnam is worried they’ll be hit with a massive fine for allowing the ruse to go on as long as it did.
A New Way to Trade
One way Vietnam found the problem was the massive and sudden shift in Vietnamese products to the United States. China’s shipments have dropped just as quickly. Vietnam itself was asking how this increase in exports happened. Some of it does have to do with an ever-changing supply chain, like the U.S. buying more from Vietnam than China as of late.
Still, many question how much of those numbers are actually accurate and what are phony. Examples of this type of fraud include changing goods made in China to say “Made in Vietnam.” One Chinese plywood manufacturer started sending their goods to the U.S. through a Vietnamese plywood company to hide what it was doing.
“A cottage industry for circumventing U.S. tariffs will likely bloom, given the high tariff rates and huge potential profit,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. “ASEAN governments will likely crackdown on such re-routing for fear of being seen as a backdoor,” Chua said, referring to the Association of Southeast Asian Nations.
“Questionable shipments are likely to be a ‘relatively small’ portion of China’s total exports to the U.S.,” said Rahul Kapoor, a senior analyst at Bloomberg Intelligence in Singapore. “There will always be leakages and workarounds to avoid tariffs, but we do not see it as a widespread phenomenon,” Kapoor said.