Trump's 40% Tariff on Transshipped Goods Signals Future China Policy

President Donald Trump’s recent trade agreement with Vietnam has provided a clear indication of the potential future of US tariffs on Chinese goods. The deal, which imposes a 20% tariff on Vietnamese exports to the US and a 40% levy on goods deemed to be transshipped, suggests that any future reduction in tariffs on Chinese goods is unlikely to fall below the 40% threshold. This move by the Trump administration signals a broader strategy to close loopholes used by Chinese exporters to dodge American tariffs, particularly through transshipment routes.

The 40% tariff on transshipped goods indicates that even if tariffs on China are eventually reduced, they are unlikely to drop below this level. This strategy is part of a broader effort to ensure that any future trade deals with China reflect similar tariff structures. Analysts suggest that the 40% figure in the Vietnam deal might reflect the Trump administration’s conviction about the appropriate tariff level on China, which could be similarly applied in other bilateral deals. However, there is skepticism about whether Trump has a specific red line for minimum tariffs on China.

Beijing and Washington reached a trade framework last month following talks, which remains in effect through mid-August. As part of the deal, China agreed to resume shipments of rare earths, key inputs for various industries. In return, the US offered to ease some export restrictions on certain goods. US tariffs on Chinese goods have been reduced to around 55%, down from as high as 145% in early April. However, 20% tariffs tied to fentanyl remain in place, and Beijing has tightened controls on precursor chemicals used to make the drug as a means to win further tariff relief.

The 20% tariff on fentanyl-related goods is currently the focal point of attention. The Chinese government is willing to negotiate a deal related to fentanyl, as they have been signaling for months. However, these efforts are unlikely to bring Chinese tariffs below the 40% rate now applied to Vietnam. If China’s duties were to fall to 35%, for instance, it would restore a competitive edge to China and encourage firms to shift operations back, which runs counter to the Trump administration’s broader objectives.

Both sides are currently following through on the terms of the London agreement and displaying signs of goodwill. The Trump administration has lifted recent export license requirements for chip design software sales in China and approved US ethane exports to China without additional approvals. A senior Chinese official recently delivered one of Beijing’s most positive messages about its nation’s ties with the US in weeks, expressing optimism about future relations and emphasizing the mutual benefits of cooperation.

Beijing is growing increasingly cautious about US efforts to strike trade deals that could isolate China. With a deadline approaching for Trump’s higher “reciprocal” tariffs, American officials are ramping up negotiations with key partners in Asia and Europe. Washington is pushing for new deals that would include limits on Chinese components in goods exported to the US or commitments to counter what the US views as unfair Chinese trade practices. Beijing has taken note of the US-Vietnam trade deal and is currently assessing the situation, reiterating its opposition to any deal that comes at the expense of China’s interests and warning of potential retaliatory steps.