China Getting Around Tariffs by Slapping “Made in Vietnam” Stickers on Its Goods

In addition to the already long list of aftershocks from the U.S.-China trade war, including the number one fear of global recession, or higher prices for American consumers, we’re seeing a completely different perspective on the “Made in China” label. By a sleight of hand–or labelling–the trade war has prompted “Made in China” to become “Made in Vietnam”, even when it wasn’t.

Vietnamese authorities are claiming that China is sidestepping Trump’s tariffs by fraudulently slapping labels on products that say “Made in Vietnam” before “certificates of origin are processed”.

In Beijing’s attempt to circumvent tariffs using Vietnam–which enjoys low-tariffs imports to the U.S. thanks to a 2001 Bilateral Trade Agreement–Vietnamese authorities say they have identified “dozens” of fake “Made in Vietnam” certificates. The fraudulently certified goods range from agriculture and textiles to steel.

But it’s not the first time this issue has come up. The Vietnamese have been holding onto this narrative for over a year.

Back in September, U.S. customs officials uncovered Chinese plywood being shipped to the U.S. via a Vietnamese company. The process would see the Chinese ship plywood to Vietnam, unpack it and then repack it at a Vietnamese factory, Control Risks’ Singapore-based  Dane Chamorro told media last year.

So why bring it up now, precisely? Likely because Vietnam is growing increasingly concerned that it’s going to end up taking the heat for this and risk some sort of punishment.

The Vietnamese Foreign Minister is worried that China’s scheme could “sabotage Vietnamese brands and products”. He’s also worried that there could end up being some sort of “tariff retribution from other countries”.

With that in mind, Vietnam is keen to close up this “Made in Vietnam” loophole–even if it is a belated response.

Honey could be another example of a product prone to export cheating from China to U.S.

China is the largest producer of honey, and Chinese companies in this segment have come under U.S. antidumping duties since 2001. But here, too, there is a clever workaround: Chinese honey companies send large unlabeled barrels of honey to Thailand and Vietnam, where it is relabeled for country of origin and then shipping to the U.S., bypassing anti-dumping duties.

The bottom line? It’s very difficult to enforce tariffs across the board in the era of globalization.

“It’s always a cat-and-mouse game … As long as people are willing to take risks in search of those arbitrages of say 25 percent duties, it’s very difficult to enforce,” Bloomberg quoted Fred Burke, managing partner at law firm Baker & McKenzie (Vietnam) Ltd., as saying.

Desperate times call for desperate measures.

According to an American Chamber of Commerce survey in China conducted in mid-May, just days after Trump doubled tariffs on $200 billion in Chinese goods and Beijing retaliated with higher tariffs on $60 billion in U.S. goods, more than 80 percent of Chinese manufacturers said they were getting hit hard.

And for U.S. companies in China, the “workaround” might end up being dramatically … legal. The rise in America’s protectionist tendencies, according to the same survey, shows that over 40 percent of U.S. companies in China were “considering or have relocated” production facilities outside China.

In the meantime, there’s always that nagging sentiment that tariffs aren’t accomplishing whatever it is that Trump is hoping they will. If this is about the trade surplus, then the numbers aren’t exactly flattering. Even discounting the fake labeling, Chinese exports rose 1.1 percent to $213.8 billion and imports fell 8.5 percent to $172.2 billion in May, according to Chinese customs agency said.

While some of that may have been an anticipatory response to the next round of tariffs… June and July data should give us a more precise handle on the situation.

Source: Safe Haven