How China Used Vietnam to Evade Higher U.S. Tariffs

By Steven Orlowski, CFP, CNPR

In the escalating U.S.-China trade war that began in 2018, tariffs became a favored tool of the Trump administration to combat what it saw as unfair Chinese trade practices. Tariff rates on hundreds of billions of dollars' worth of Chinese goods rose sharply, disrupting global supply chains and prompting a wave of corporate relocations. But behind the headlines, a quieter maneuver unfolded—Chinese exporters began using neighboring Vietnam as a strategic workaround to bypass U.S. trade penalties.

A Convenient Loophole

When tariffs on Chinese goods increased, many Chinese manufacturers found a simple solution: reroute their products through Vietnam. By doing so, they could effectively relabel Chinese-made goods as Vietnamese exports, skirting the punitive duties imposed by Washington.

This practice, known as transshipment, isn’t new—but it exploded in scope and sophistication following the trade war’s onset. According to U.S. Customs and Border Protection (CBP), transshipment is illegal when used to intentionally misrepresent the country of origin of goods in order to avoid tariffs. Nonetheless, enforcement proved challenging amid the surge in global trade complexity.

Vietnam’s Surging Exports: A Red Flag

Vietnam quickly emerged as one of the biggest beneficiaries of the U.S.-China trade dispute. From 2018 to 2020, U.S. imports from Vietnam soared by more than 35%, making it one of the fastest-growing trade partners with the U.S.

Some of this growth was legitimate. Multinational corporations—including Apple, Samsung, and Nike—accelerated their diversification away from China, building or expanding factories in Vietnam. But analysts and government agencies noted suspicious trends. In many cases, Vietnam was exporting products it had no historical capacity to manufacture in significant volume—such as high-end electronics, furniture, and textiles—raising alarms about potential transshipment schemes.

The Mechanics of Evasion

Chinese companies employed various tactics to exploit Vietnam’s position:

• Shell Companies: Some Chinese firms established front companies in Vietnam to process minimal packaging or labeling changes, enough to claim Vietnamese origin.

• Joint Ventures and Partnerships: Collaborating with Vietnamese firms gave Chinese companies access to legitimate export channels.

• Component Shipping: In more sophisticated operations, components were sent from China to Vietnam for final assembly, skirting origin rules even if the bulk of the product was still Chinese-made.

In June 2019, Vietnamese customs officials busted several Chinese companies for falsely labeling products such as aluminum and textiles. In one case, nearly $4.3 billion worth of Chinese aluminum was stored in Vietnam to be re-exported as Vietnamese goods to the U.S.

Washington's Crackdown

The U.S. responded with increased scrutiny. In 2020, the Department of Commerce imposed preliminary duties on Vietnamese steel products it determined had originated from Chinese materials. U.S. Customs also launched a series of investigations and began applying more stringent “rules of origin” tests.

In parallel, Vietnam faced pressure to clean up its export practices. In 2020, Vietnam’s Ministry of Industry and Trade imposed stricter regulations and began investigating suspicious trade patterns. Vietnam, eager to maintain its reputation and trade privileges, especially its access to the U.S. market under the Generalized System of Preferences (GSP), vowed to crack down on origin fraud.

The Bigger Picture: Supply Chain Realignment

While transshipment was a temporary fix, the broader impact of the trade war was a permanent reshaping of global supply chains. Many companies took the opportunity to diversify out of China altogether, embracing the “China Plus One” strategy—where businesses maintain operations in China while building capacity in countries like Vietnam, Malaysia, Indonesia, and India.

Vietnam, with its low labor costs, young workforce, and growing infrastructure, was well-positioned to attract long-term investment. The transshipment loophole may have initially inflated its trade numbers, but the country’s deeper integration into global supply chains is likely to remain even after the trade war dust settles.

Conclusion

The story of how China used Vietnam to sidestep U.S. tariffs reveals the adaptability of global commerce—and the limitations of unilateral trade policy. While tariffs were meant to hurt Chinese exporters, they instead accelerated the globalization of production, reshuffled trade routes, and created opportunities for evasive maneuvers.

As geopolitical tensions continue and countries reassess the risks of concentrated supply chains, Vietnam’s role as a manufacturing hub will likely keep expanding. But so too will the scrutiny of how and where products are truly made.