America is using the threat of tariffs to push its allies to turn against China
Beijing has threatened counter-measures
Image: NYT
The weapon of choice in Washington’s campaign against China is a memo. On July 7th the Trump administration dispatched formal letters to a clutch of America’s trading partners—Japan, South Korea, Vietnam, Cambodia, Laos, Myanmar—warning of steep new tariffs unless they secured trade deals by August 1st. Refuse and get slapped with punitive tariffs ranging from 25% to 40%. None of the letters named China. They did not need to.
Washington’s latest strategy is an indirect assault. Whereas earlier rounds of economic warfare were waged head-on via blunt tariffs on Chinese goods, this phase relies on pressuring third countries. The threat is explicit: continue trading with China or risk losing privileged access to the world’s biggest consumer market. The administration has extended similar warnings to Brazil and the Philippines, alongside BRICS-aligned nations.
Vietnam is the poster child of this coercive diplomacy. A new bilateral deal offers Hanoi a grim compromise: 20% tariffs on most Vietnamese exports to America, rising to 40% for any goods suspected of being “transshipped” Chinese products. Transshipment, where firms reroute goods through third countries to dodge tariffs, is not new. What is novel is the scale and formality of America’s crackdown. Officials are threatening tariffs not on Chinese goods per se, but on goods suspected of having Chinese DNA, even when legally transformed into finished products.
The move builds on a May deal with Britain. In exchange for continued trade privileges, the UK agreed to trim Chinese input in its supply chains and allow US inspection of Chinese-owned factories operating on British soil. Some liken it to a modern-day extension of extraterritoriality: an American attempt to impose its industrial policy abroad through commercial leverage.
The manoeuvre for China is maddening. Beijing has condemned the deals as “unacceptable” and threatened counter-measures, though it has been vague on what these might be. Its real headache is the ambiguity surrounding what qualifies as transshipment. The definition appears elastic by design, wide enough to ensnare both legal supply-chain adjustments and illicit relabelling schemes.
Trade data lends weight to American suspicions. In May China’s exports to America tanked by 34% year on year. Yet Chinese exports to Vietnam, Mexico, India and Thailand roared. These countries in turn boosted their own exports to America, often in the very same product categories. The Economist’s analysis of April–May figures shows an uncanny alignment. Cambodia for example imported $52m worth of sweaters from China and exported $26m worth to America. Thailand took in $114m of Chinese car parts and shipped $42m of car parts stateside.
Vietnam alone exported $2bn more to America than in the previous year; Thailand added $1.8bn, India $1.6bn, Taiwan $1.1bn. Some of this may be legal substitution. Chinese firms, frozen out of America, pivot to selling components to regional assemblers. These firms then export finished products westward. Under current “substantial transformation” rules, a product reclassified through meaningful processing—fabric into shirts, flour into cake—earns a new origin label.
Yet Washington appears ready to ditch such qualitative criteria in favour of quantitative thresholds. The next salvo may define origin by value: if too much of a product’s worth derives from Chinese inputs, then even a reassembled good becomes tariffable. That spells trouble for Vietnam, whose Chinese content in exports to America rose from 6% in 2017 to 16% in 2022, according to Natixis. The “China wash” allegation—that Vietnam is laundering Chinese goods—has become a talking point for Trump’s advisors. Peter Navarro claims a third of Vietnamese exports fall into this category. Others like Caroline Freund of UC San Diego estimate the peak was under 8% in 2020 and is likely lower now. But in policy perception tends to trump precision.
Indeed, outright fraud is already a target. In 2024 a Florida couple was sentenced to over four years in prison for importing Chinese plywood falsely labelled as Sri Lankan and Malaysian. Vietnam has pledged to crack down on such practices. America for its part is escalating enforcement. In May the US Department of Justice ranked trade and customs fraud as its second-highest priority in white-collar crime.
America is redrawing global commerce with tariffs as lines of allegiance. The consequences will not be confined to China. Supply chains are becoming ideological frontiers. What began as a tariff skirmish may evolve into a system-wide reordering of global trade. ■