"If the U.S. Regulates All Transshipped Chinese Products, Most Imports Will Be Affected"

Proportion of Chinese Value Added in Products Soared to 22% in 2023

Indirect Exposure to China in U.S. Imports Grew Further After Strengthened Regulations

The United States is expected to prepare not only to regulate the transshipment of Chinese finished goods via third countries, but also to treat products containing Chinese components as transshipped and subject to regulation. If this happens, analysis shows that most goods imported into the United States will be impacted.

According to Bloomberg on the 22nd (local time), the share of Chinese value added in goods shipped to the U.S. via third countries such as Mexico and Vietnam rose sharply from 14% in 2017 to 22% in 2023. In other words, since Trump began the first round of his trade war against China in 2017, the indirect exposure of U.S. imports to Chinese products has actually increased.

Bloomberg pointed out that this trend accelerated as Trump implemented the first trade war and direct import controls against China became stricter.

Analysts observed that the growing flow of Chinese components and input materials to the U.S. via third countries has helped both China and the U.S. mitigate the impact of tariffs.

Nevertheless, if the Trump administration seeks to thoroughly control transshipment through tariff hikes or stricter supply chain requirements, it is estimated that 70% of Chinese exports to the U.S., and more than 2.1% of the GDP of major Asian trading partners with China, will be at risk. Furthermore, should Asian countries reduce trade volumes with China due to such U.S. restrictions, they could suffer additional economic losses.

Recently, the Trump administration has been increasing pressure on China through negotiations with third countries. In letters sent to several countries in which it warned that tariffs would be imposed if bilateral trade agreements were not reached by August 1, it threatened higher tariffs on goods identified as transshipped. This expands the targeting of a broader range of Chinese exports to the U.S.

Currently, the countries most relied upon by China to indirectly send goods to the U.S. are Mexico and Vietnam. For Vietnam, the European Union (EU) also serves as a major hub for goods, and Canadian, South Korean, and Japanese exports often contain Chinese components as well.

The U.S. has already included supply chain security requirements in its trade agreement with the United Kingdom and limited quotas on U.S.-bound exports from steelmakers with Chinese stakes.

However, economists at Bloomberg Economics noted that it is uncertain how strictly the U.S. will be able to enforce transshipment restrictions. They also said that the definition of domestic products by the U.S. is ambiguous, and that there is a lack of detail for verification.

Kim Jeong-Ah, Contributor kja@hankyung.com