China's clever trick to avoid tariffs and sneak its merchandise onto US shelves

If there's one thing China can't be denied, it's the ingenuity and insight of its productive network to transport and sell its goods wherever it wants. Before the trade war with the US, Chinese companies had it relatively easy: they just had to produce the goods the West demanded at any given time at a lower cost than their competitors and with acceptable quality. This strategy, based on low costs and a growing capital allocation per worker (Chinese industry has been expanding) has served to generate one of the largest trade surpluses in the world . Now that tariffs are aggressively seeking to reduce this surplus and the competitiveness of "made in China" goods, the Asian giant's exporters are looking for ways to continue introducing some of their products into the US.

Chinese exporters are implementing ingenious strategies to avoid the tariffs imposed by US President Donald Trump, shipping their products through third countries to conceal their true origins. Beijing and its companies are not inventing anything new, as this plan or technique has already been used in similar situations by other countries, such as Russia, which has been used to "sneak" its "banned" oil into cars across Europe. However, China's case is somewhat special due to the high volume of its exports, both in terms of goods and money.

The echoes of the first trade war, during Donald Trump's first term, already led to the use of third countries to export goods from China to the US. The idea was, in a way, to "erase the trace" of China on products , and Southeast Asia provided an unparalleled platform for this. For example, Vietnam has been the most famous sieve for technological products . Little by little, Beijing moved part of the production process there to avoid greater harm to exports to America. Now, the intensification of the trade war, with harsher threats from the White House, requires further and faster wits. While waiting for Washington and Beijing to sit down at the table or not, small-scale initiatives—the "shortcuts," one might say— have multiplied .

Chinese social media platforms are filled with ads offering so-called "origin washing," while the flood of products from China has set off alarm bells in neighboring countries, wary of becoming mere dumping grounds for Chinese products that end up in the US.

The growing use of this tactic reinforces exporters' fears that Trump's new tariffs of up to 145% on Chinese goods will deprive them of access to one of their most important markets. "The tariff is too high," Sarah Ou, a salesperson at Baitai Lighting, an exporter based in the southern Chinese city of Zhongshan, told the Financial Times . "But we can sell the products to neighboring countries, and then they sell them to the US, and the price will be lower."

U.S. trade laws require products to undergo "substantial transformation" in a country, typically including a process or manufacturing process that adds significant value, to be considered originating in that country for tariff purposes. Some of the listings on social media platforms like Xiaohongshu offer help to exporters shipping goods to countries like Malaysia, where they will be issued a new Certificate of Origin and then shipped to the U.S.

"Has the US imposed tariffs on Chinese goods? Go through Malaysia to 'transform' them into Southeast Asian products!" read an ad posted this week on Xiaohongshu by an account called "Ruby - Third Country Transshipment." "Has the US imposed limits on Chinese wooden floors and tableware? Wash the origin in Malaysia for smooth customs clearance!" it added. The Financial Times has attempted to contact several people connected with these platforms and ads, but the British outlet has not received a response.

South Korea's customs agency said last month it had found 29.5 billion won ($21 million) worth of foreign products with counterfeit countries of origin in the first quarter of this year, most of it originating in China and almost all of it destined for the U.S. "We are seeing a sharp increase in recent cases where our country is being used as an escape route for products to avoid various tariffs and restrictions due to changes in U.S. government trade policy," the agency warned in a statement. "We have found numerous cases where the origin of Chinese products was being counterfeited as Korean."

Last month, Vietnam's Ministry of Industry and Trade urged local trade associations, exporters, and manufacturers to strengthen controls on the origin of raw materials and inputs and to prevent the issuance of counterfeit certificates. Thailand's Department of Foreign Trade also announced measures last month to strengthen controls on the origin of products destined for the United States to prevent tariff evasion.

Salespeople from two logistics companies claimed they could ship the goods to Port Klang in Malaysia, where they would transfer the items to local containers and change their labels and packaging. The companies had contacts with factories in Malaysia that could help issue certificates of origin, said the sellers, who asked not to be identified. "The US must know," sources consulted by the FT assured. "It can't be crazy, so we are controlling the number (of orders we accept)," the Malaysian sources said.

"They (Malaysian customs) are not very strict ," another seller asserted. In a statement issued after the publication, Malaysia's Ministry of Investment, Trade and Industry stated that the country was "unequivocally committed to upholding the integrity of international trade practices" and "considers any attempt to circumvent tariffs through misrepresentation or false declarations, whether related to the value or origin of goods, as a serious violation."

Those familiar with the sector and the context are well aware of the lax approach . A consultant who advises companies on cross-border trade acknowledged to the FT that origin washing is one of the two main methods being used to avoid Trump's new tariffs. However, it is not the only one. The other involves mixing high-cost items with cheaper ones , so that exporters can falsely claim lower overall shipping costs.

The British financial daily reports another particularly revealing account. The owner of a consumer goods manufacturer based in the southern Chinese city of Dongguan recounted that two national industry associations introduced him to intermediaries offering "gray zone" tariff solutions —solutions of dubious legality. "Basically, I just ship to a Chinese port, and they handle it from there," the owner confesses, adding that the intermediaries had offered to arrange the solution for just 5 yuan ($0.70) per kilogram shipped . "These agencies told me that small and medium-sized companies like us can better weather the tariff hit because there are always gray zones. I hope that's true. The US is a big market; I don't want to lose it."

Months ago, when Trump's tariff salvo was just a hypothesis and the triple-digit tariffs decreed so far weren't even considered, UBS chief economist Paul Donovan was already talking about the "Bermuda Triangle" of international trade, referring to the "hole" through which theoretical exports from China to the US were falling . "When you analyze trade between two countries, the value of exports should be lower than that of imports (because the two include shipping and insurance costs). In recent years, the value of Chinese exports to the US has exceeded that of US imports from China. This anomaly suggests that up to 30% of Chinese exports to the US disappear before they arrive," the analyst explained.

"Trade tariffs don't affect the value of US imports (since the tax is paid by US consumers after the imports arrive and their value has been assessed). However, taxing trade can encourage supply chain rerouting . What China considers an export to the US may be considered an import from elsewhere in the US data. The patterns in the data anomaly support this hypothesis," the UBS expert added.

Donovan was talking about nothing other than diversification , or in other words, the intermediation that rests on countries like Vietnam and Mexico. "Diversifying imports away from China does not necessarily translate into less exposure to Chinese industries. Vietnam, for example, has been one of the biggest beneficiaries of US attempts to diversify its imports. Vietnam's share of US imports has steadily increased in several sectors where China's share has declined," note strategists Josh Lipsky and Mrugank Bhusari of the American think tank Atlantic Council in a commentary.

Oxford Economics analyst Louise Loo delves into this issue, pointing out that the very presence of tariffs encourages "under-declaration" behavior, as importers underestimate the value of goods to US customs authorities , resulting in lower nominal import values. "This has been a significant phenomenon in the past, as we see in the growing mismatch between US customs-declared imports from China and Chinese customs-declared exports to the US, which reached around $90 billion last year," Loo certifies. If this were to happen again, the magnitude of total tariff avoidance (both through diversion and under-declaration) would be considerable: more than half of the approximately $295 billion annual historical trade imbalance between the US and China, according to the British analyst firm.

In this client note, Loo agrees that some Asian economies, such as Vietnam, Singapore, and to a lesser extent India and Thailand, may benefit from trade diverted from China (whether through surface re-exports from China or through Chinese factories producing in other economies) under the weight of data: " Chinese companies have led (outward) foreign direct investment in manufacturing across ASEAN (Asia-Pacific) and other parts of emerging markets in recent years, further blurring the definition of 'Chinese goods' in the context of customs duty enforcement."