24 Jul Where to Next? Click to keep reading…
The U.S. and China are not the only countries being affected as the trade conflict continues. Some countries, like Vietnam, have reaped the benefits of companies moving manufacturing as a way to avoid the impact of tariffs on goods produced in China. Vietnam has seen a quarterly increase of $1.1 B year-over-year exports to the U.S. on tariffed goods.
Companies are trying to avoid the tariffs by using a tactic called transshipment, where exports from China are moved to a third port, where there are no trade restrictions in place. In some instances, trade fraud is at play where the origin of goods is mislabeled (again using a country where no trade restrictions exist). The Vietnamese Ministry of Industry and Trade commented to The Wall Street Journal that “fraudulent labeling not only directly affects products and consumers, but also significantly reduces the reputation and competitiveness of goods manufactured in Vietnam.” Flexport’s Chief Economist Phil Levy notes, “It is important to remember that moving manufacturing need not entail moving all stages of production. If a good is mostly made in China, but there is a final, substantial transformation that occurs in Vietnam, the good can still count as Vietnamese. That’s one reason that establishing transshipment is more challenging than just looking at overall export numbers.”
The tariff landscape is increasingly uncertain, and the retaliatory trade restrictions are impacting many other countries. For instance, the manufacturing shift to Vietnam is placing an increased demand on their infrastructure, which has been built on an agrarian economy. President Trump has already stated that Vietnam is “almost the single-worst abuser of everybody…we’ll start working on that too”, suggesting that Trump may impose tariffs on Vietnam as well. Levy notes, “This is the great challenge of managing global supply chains in the era of volatile trade policy, making it difficult for companies seeking a safe harbor and enough advance warning to allow for practical investment decisions.”
At the end of the day, OEM’s will let “the math” guide their choices in their quest for supply chain diversification.