Donald Trump’s new Asia tariff strategy is leaving exporters in Vietnam, Indonesia, and the Philippines trying to make sense of what exactly counts as Chinese.
The president rolled out new rates, 20% for Vietnam, 19% for Indonesia and the Philippines, aimed at most of Southeast Asia’s exports, which total about $352 billion annually to the United States.
But the real pain could come from a 40% tariff that Trump said would apply to any product labeled as transshipped, goods he believes are just Chinese imports rerouted through other countries.
The White House has made it clear the intent is to block Chinese supply chains from bypassing earlier tariffs. But what Trump hasn’t said is how the U.S. will decide what qualifies as transshipped. That’s where things are falling apart.
Companies don’t know what ingredients are going to get them hit. Is it just raw materials? What about parts, labor, or capital? Nobody’s answering, and according to Bloomberg, everyone from economists to investors is stuck guessing.
Trump offers no clear standard
Trump’s administration struck a deal with Indonesia last week, saying both countries would now negotiate “rules of origin” to keep third countries from sneaking goods through. But there’s still no threshold on what counts as local.
A deal with Vietnam earlier this month added the same 40% tariff threat but offered no clarity. Meanwhile, officials in Thailand, which hasn’t signed anything yet, say they’ve been told they’ll have to boost local content significantly if they want to avoid the same penalties.
A person familiar with the matter allegedly told Bloomberg that U.S. trade officials are still working out how to apply value-based local content requirements, with the goal of stopping goods that are just assembled with imported parts. But even a senior Trump official only said that final rules on transshipment are expected by August 1, which is when the new penalties kick in. That’s left manufacturers scrambling.
Some firms aren’t waiting around for Washington to decide.
Vietnam’s rules include a cap where only 30% of raw material volume can come from China. Plus, the final product value must be at least 40% higher than the cost of the imported materials. Meeting that bar means adjusting everything; suppliers, labor, and even pricing.
Southeast Asia faces huge supply chain overhaul
Changing suppliers is easier said than done. Eurasia Group estimates that 60% to 70% of what Southeast Asia ships out depends on Chinese-made parts, mostly industrial components.
Ripping those out of the system is like trying to perform surgery on a machine while it’s still running. Right now, about 15% of Southeast Asia’s exports go to the U.S., up from 11% in 2018, but that growth is now at risk.
Thai leaders are bracing for more disruption. Deputy Prime Minister Pichai Chunhavajira said they’ve heard the U.S. may demand 60% to 80% local content to avoid being flagged as Chinese. “Emerging countries or new production bases are clearly at a disadvantage,” Pichai said, pointing out that most of their industries still depend on foreign raw goods to function.
Countries like Vietnam, Malaysia, and Thailand have already responded to Trump’s pressure this year. They’ve introduced new rules-of-origin policies, started centralizing their customs processes, and put harsher penalties in place for goods suspected of being rerouted from China. But even with all that, enforcing these rules might not be realistic.
For now, the only certainty is that Trump’s plan has dropped a massive cloud of uncertainty over Asia’s biggest manufacturing hubs. Companies are waiting for answers, countries are trying to stay compliant, and everyone is still trying to figure out what “too much China” really means.
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Source: https://www.cryptopolitan.com/trumps-asia-tariff-plan-exporters-guessing/