U.S. imports of goods transshipped through Vietnam would be subject to an additional 40% tariff under a trade framework announced by President Trump earlier this month. This provision, also reflected in proposed agreements with other Asian countries, is widely seen as an attempt to prevent Chinese goods destined for the U.S. from circumventing higher tariffs. “Goods transshipped to evade a higher tariff will be subject to that higher tariff,” the president wrote in nearly identical letters to the leaders of Indonesia, Japan, Malaysia, South Korea, and other trading partners, language that has prompted head-scratching discussion among trade professionals about what ‘transshipped’ means in that context.
Transshipment, at its most basic, refers to the movement of goods between different conveyances, such as airplanes, trains, or trucks, during transit to their final destination. In the context of trade facilitation and enforcement, the term takes on a more specific and often contentious meaning.
Illegal Transshipment: Tariff Evasion and Misrepresentation
Illegal transshipment refers to deceptive efforts to misrepresent a good’s country of origin to circumvent trade regulations and evade tariffs. It can involve physically diverting goods through a third country and performing minimal or no operations there, then claiming that as the country of origin. It can also involve effectively falsifying documents to claim an inaccurate country of origin for goods that haven’t transited through that country.
During the first Trump administration, some manufacturers sought to bypass higher U.S. tariffs on Chinese-origin products by falsely claiming transshipment hubs like Vietnam and Mexico as the country of origin, a violation that can bring fines, penalties, and even jail time.
Legal Transshipment: Documented and Compliant Movement
In contrast, legal transshipment adheres to established guidelines for transferring cargo, ensuring that all goods are properly documented and accounted for and comply with the laws of the destination country. This can involve keeping goods under the control of customs in the intermediate country without letting them enter that country’s commerce, and undertaking only necessary operations like loading, unloading, or activities to preserve the goods’ condition.
Many free trade and preferential trade agreements allow a duty exception for in-transit goods shipped directly through third countries. Evidence such as bills of lading showing the U.S. as the final destination supports these claims. If goods are legally transshipped, importers are subject only to the duty applicable to imports from the appropriate country of origin.
Implications of the U.S.-Vietnam Agreement
Regardless of the technical details, if the president’s threat of additional tariffs on transshipped goods remains in a final deal, U.S. importers can expect enhanced enforcement of country of origin rules in both the U.S. and intermediary countries like Korea, Taiwan, Thailand, and Vietnam. This could include closer scrutiny of trade documentation, increased inspections of manufacturing facilities, and stricter monitoring of supply chains linked to China.
To remain compliant and competitive, enterprises and logistics service providers will need visibility deep into product value chains, which are the multi-tier network of materials, components, and human inputs from the soil to the store shelves that make up a finished good. That will enable them to quantify exposure to transshipment tariffs and find alternative suppliers to reduce tariff exposure.
Artificial intelligence — already in use by U.S. Customs & Border Protection — can give importers and logistics service providers an instant, dynamic map of N-tier relationships at the product level, revealing and quantifying upstream Chinese inputs. Importers will also need the ability to collaborate with upstream suppliers and government agencies to validate country of origin, make strategic investments, discover alternative suppliers, and gather and share documentation to prove compliance. The ambiguity surrounding the definition of ‘transshipment’ under these frameworks illustrates the need for continued vigilance and flexibility in an evolving global trade landscape. The administration is redrawing the lines between legitimate and illegitimate trade practices, potentially leading to significant economic disruption for intermediary countries and upheaval for global supply chains. In that dynamic trade environment, enterprises and LSPs can gain a competitive advantage by embracing AI and other technology solutions.
This is a guest blog post by Lenny Feldman and Shawn McCausland of Sandler, Travis & Rosenberg, P.A.
Lenny Feldman is a Managing Partner at Sandler, Travis & Rosenberg, P.A., resident in the firm’s Miami office. He is recognized internationally as a leading strategic advisor on issues such as forced labor, intellectual property rights, e-commerce policy, trade partnership programs and legal/regulatory modernization.
Shawn McCausland is Communications Manager at Sandler, Travis & Rosenberg, P.A.
