Trump's focus on a transshipping loophole could reorder how global trade works
Trump's focus on a transshipping loophole could reorder how global trade works

Trump’s focus on a transshipping loophole could reorder how global trade works

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Trump’s focus on a transshipping loophole could reorder how global trade works

President Trump has made the issue of transshipping a centerpiece of his latest trade efforts. The focus is partly a nod to Trump’s larger standoff with China, which has been accused of using the practice as a way to skirt trade barriers. Trump may be moving toward a broader definition in that deal to perhaps make a product assembled in Vietnam “with some amount of Chinese content” subject to the higher duty. But this more precise definition is still the subject of negotiations with Vietnam and others and is set to be worked out on a country-by-country basis.

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President Trump has made the issue of transshipping a centerpiece of his latest trade efforts.

He announced a Vietnam deal in which tariffs are doubled on any such product and included language on the issue in letters sent to more than two dozen trading partners this past week including Saturday letters with 30% tariffs on both the European Union (EU) and Mexico.

The focus is partly a nod to Trump’s larger standoff with China, which has been accused of using the practice as a way to skirt trade barriers placed on its own country.

And the issue is a global one with Trump also warning other trading partners around the globe from doing their own transshipping and with some of Trump’s moves leaving trade watchers with a sense that the president is looking to expand the definition of the term.

Transshipping is traditionally defined as when cargo makes essentially a pit stop in a third country. Cargo can, say, move from one boat to another but the commonly agreed-upon rules are that the “origin” (and tariff rate) remains with the initiating country in such a scenario.

It becomes the product of this middle country only with “substantial transformation.”

That’s where things get tricky — and what many view as a loophole Chinese shippers have been exploiting for years.

President Trump speaks to reporters at the White House on July 11. (Celal Gunes/Anadolu via Getty Images) · Anadolu via Getty Images

International trade lawyer Ted Murphy noted in a blog post after the Vietnam announcement that Trump may be moving toward a broader definition in that deal to perhaps make a product assembled in Vietnam “with some amount of Chinese content” subject to the higher duty.

“This is a big change and could impact a significant percentage of product depending on where the threshold for Chinese content is set,” he added.

A White House official suggested the administration’s goal is best understood as an effort to find a more precise and rigorous approach to transshipping.

They stressed that the trade team is wrestling with nuances between some instances of clear attempts to evade tariffs and others where a manufacturer is simply bringing together a variety of components.

Read more: What Trump’s tariffs mean for the economy and your wallet

But this more precise definition is still the subject of negotiations with Vietnam and others and is set to be worked out on a country-by-country basis. No universal line is likely to be drawn or necessarily even desirable, at least according to the White House view, given different country situations.

This focus from Trump’s team has already gotten a strong reaction, with China’s Commerce Ministry warning that “China will not accept it and will take resolute countermeasures” if it feels that any deal cuts them out of supply chains.

Source: Finance.yahoo.com | View original article

Source: https://finance.yahoo.com/news/trumps-focus-on-a-transshipping-loophole-could-reorder-how-global-trade-works-143025702.html

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