On July 7, U.S. President Donald Trump posted letters to 14 countries on his self-created social media platform “Truth Social,” announcing that the corresponding tariffs on these countries would be increased from the current suspended rate of 10% to between 25% and 36%, effective August 1.
According to Trump’s previous statements, he plans to send letters to over 100 countries to increase tariffs. The first 14 countries to receive these letters include U.S. East Asian allies Japan and South Korea, as well as ASEAN countries such as Malaysia, Cambodia, Thailand, Indonesia, Myanmar, Laos, and developing countries like Bosnia and Herzegovina, Tunisia, Serbia, Kazakhstan, Bangladesh, and South Africa.
Each of the 14 countries received a letter containing the same message: If goods are transshipped to evade higher tariffs, these countries will face even higher tariffs. This aligns with the agreement previously made between the U.S. and Vietnam. The full details of the U.S.-Vietnam agreement have not been published, but according to Trump’s wording on social media, all Vietnamese exports to the U.S. will be subject to a 20% tariff, while goods transshipped through Vietnam will face a 40% tariff.
It is clear that Trump, in setting different tariff levels for each country, is particularly concerned about transshipment. This is because the “differentiated” counterpart tariffs he created generate a trade environment that differs from that under the WTO rules. One of the core principles of the WTO is Most-Favored-Nation (MFN) treatment, which requires WTO members to treat all other members equally in terms of tariffs. For instance, the same product would incur a 5% tariff when imported from both Country A to Country B and from Country C. However, by setting separate tariffs for each country, the U.S. is introducing a system where the same product entering the U.S. would be subject to different tax rates, creating potential for arbitrage.
Among the first countries to receive the letters, Japan and South Korea have both been imposed a 25% tariff. Their letters specifically mention transshipment, stating, “Please understand, the 25% figure is far below the number needed to eliminate the U.S. trade deficit with your country. Goods transshipped to evade higher tariffs will be subject to even higher tariffs.”
In contrast, for developing economies in the first batch of recipients, particularly ASEAN countries, while Malaysia’s tariff is set at a mid-high level of 25%, the tariffs for the other five countries range from 32% to 40%, close to or equal to the 40% tariff imposed on goods transshipped through Vietnam.
BMI, a research arm of Fitch Group, stated that it is difficult to clearly explain how the tariffs on the countries in the first batch have been adjusted compared to those set on April 2. Cambodia is an exception, as its tariff level was reduced from 49% to 36 due to progress in its bilateral trade negotiations with the U.S.
In the Trump 2.0 era, global trade transshipment has become an important topic. However, how to define transshipment, and how it operates in practice?
Alaric, a writer for Vancisco, explains that the concept of transshipment is difficult to define accurately. Traditionally, transshipment, or re-export trade, refers to the process of transporting goods to an intermediate destination, repackaging or splitting the goods, and then shipping them to the final destination. In such cases, the origin of the goods may not change.
However, the situation with Vietnam is no longer a traditional transshipment trade. It involves a certain degree of value-added processing, although the value-added percentage is relatively low, the goods may change their country of origin.
In the past, under the WTO framework, the value of origin was not particularly important due to the MFN principle. Whether goods were exported from Vietnam or from another country to the U.S., the tariff was the same. But now, with Trump’s country-specific tariffs, the tariff rates vary for each country, which makes the origin of goods highly relevant. “The core of transshipment is determining the origin of goods,” Alaric added.
Since the details of the U.S.-Vietnam agreement have not yet been made public, it is difficult for outsiders to know the specific provisions regarding origin. For instance, when a product is issued a Vietnamese certificate of origin, does it need to prove that the value-added percentage of a particular country does not exceed a certain amount (e.g., 20%), or must the value added in Vietnam reach a certain level (e.g., 40%)?
In addition to the issue of defining origin, there is also the question of enforcement strength. Alaric points out that the cost of enforcing origin rules is very high. In the past, during the trend of trade liberalization, the origin was not important, but now, with the trend toward trade protectionism, origin has become increasingly important.
This reversal of trends means that countries will have to shift their approach to trade operations, essentially requiring the establishment of a new system for determining the origin of goods. This will require considerable human and material resources to verify the origin of goods.
More importantly, how motivated countries with lower U.S. tariffs are to strictly enforce the origin rules remains uncertain.