As U.S.-China trade tensions escalate in 2025, Chinese companies face unprecedented tariffs, with duties on Chinese imports reaching up to 245% under the Trump administration. These tariffs, initiated in February 2025 and intensified through April, aim to curb Chinese exports and address trade imbalances. However, Chinese exporters are deploying sophisticated strategies to evade these levies, leveraging transshipment, mislabeling, and supply chain diversification.
The Context: A Spiraling Trade War
The U.S.-China trade war, reignited in 2025, began with a 10% tariff on all Chinese imports on February 1, citing the fentanyl crisis, followed by increases to 20% in March, 34% in April, and up to 245% by May, per Executive Order 14257 under the International Emergency Economic Powers Act (IEEPA). China retaliated with tariffs of up to 125% on U.S. goods, export restrictions on critical minerals, and blacklisting U.S. firms. This tit-for-tat escalation has pushed Chinese companies to find creative ways to maintain access to the lucrative U.S. market, which accounted for $439 billion in imports in 2024.
How Chinese Companies Are Dodging U.S. Tariffs
Transshipment Through Third Countries
Chinese companies are increasingly using “origin washing” to disguise the source of their goods. Products are shipped to third countries, where they are relabeled or minimally processed to appear as originating from those nations, thus avoiding high U.S. tariffs on Chinese goods. Key methods include:
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Minimal Processing: Goods are sent to countries like Malaysia, Vietnam, or South Korea, where they undergo minor alterations (e.g., repackaging or adding components) to qualify for lower tariffs. For example, Chinese electronics may be assembled in Vietnam with minor local inputs to claim Vietnamese origin.
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False Certificates of Origin: Freight brokers advertise “place-of-origin washing” services on Chinese social media, offering to falsify documentation. In Malaysia, ads promise to “transform” Chinese goods into Southeast Asian products. South Korea’s customs agency reported $20.81 million in origin violations in Q1 2025, 97% of which were U.S.-bound.
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Bonded Warehouses: In Mexico, Chinese goods are broken down into small, tariff-free packages under $800 (the de minimis threshold) in bonded warehouses before entering the U.S., a practice dubbed the “Tijuana two-step.”
Locations: Malaysia, Vietnam, South Korea, Indonesia, and Mexico are primary transshipment hubs. Malaysia’s ports, like Port Klang, are hotspots due to lax oversight, while Vietnam’s manufacturing boom has made it a favored waypoint. The UAE has also emerged as a hub, with Chinese firms setting up operations to reroute goods.
Timing: Transshipment surged after the February 2025 tariffs, with a notable spike following the April 2 tariff hike to 34%. By May 2025, Chinese social media platforms were flooded with ads for transshipment services, indicating a rapid scaling of these operations.
Mislabeling and Undervaluing Shipments
Chinese exporters are manipulating documentation to reduce tariff liabilities:
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Mislabeling Origins: Goods are labeled as originating from countries with lower tariffs, such as Spain or South Korea. For instance, a U.S. company received headsets labeled as Spanish-made, but Chinese labels revealed their true origin.
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Undervaluing Shipments: Logistics firms offer “double clearance and tax-inclusive” services, underreporting the value of goods to lower duties. This practice has exploded, with tens of thousands of Chinese logistics companies involved by April 2025.
Locations: This occurs globally, with South Korea and Indonesia leading in fraudulent exports. Chinese ports like Yantai and Suqian are key departure points.
Timing: Mislabeling became widespread after the March 2025 tariff increase to 20%, as exporters sought to offset rising costs.
Supply Chain Diversification
To reduce reliance on U.S. markets, Chinese firms are diversifying production and markets:
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Relocating Manufacturing: Companies are moving production to Southeast Asia, the UAE, and Mexico to produce goods outside China’s tariff regime. For example, Chinese chip firms have invested in Malaysia’s Penang to avoid U.S. restrictions.
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Domestic Sales Push: Beijing is encouraging exporters to sell domestically, though weak consumer demand limits success. The Ministry of Commerce held meetings in April 2025 to boost local sales, but deflationary pressures hinder progress.
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New Markets: China has increased trade with Southeast Asia (now its largest trading partner), the EU, and Africa. President Xi Jinping’s April 2025 visits to Vietnam, Malaysia, and Cambodia aimed to bolster these ties.
Locations: ASEAN countries, particularly Vietnam ($234 billion in Q1 2025 trade), and the UAE are key. Mexico’s proximity to the U.S. makes it a strategic manufacturing base.
Timing: Diversification efforts intensified post-February 2025, with significant investments in ASEAN by April.
U.S. Countermeasures to Stop Tariff Evasion
The U.S. is actively working to curb these evasion tactics, though challenges persist:
Enhanced Customs Enforcement
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Investigations: U.S. Customs and Border Protection (CBP) has ramped up investigations into transshipment, focusing on Malaysia, Vietnam, and Mexico. In April 2025, CBP flagged mislabeling of uninhabited islands’ goods to counter origin fraud.
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Penalties: Violators face fines and seizures. South Korea’s $20.81 million in Q1 2025 violations prompted U.S.-South Korea cooperation on origin verification.
Tariffs on Transshipment Hubs
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Strategic Tariffs: The U.S. imposed tariffs on Southeast Asian countries to deter transshipment. Vietnam faces 46% tariffs, Malaysia 36%, and Cambodia 49%, signaling that serving as Chinese waypoints risks economic penalties. Trade expert Henry Gao noted these tariffs as a “crude but potentially effective” deterrent.
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Impact: Vietnam agreed in April 2025 to crack down on Chinese goods transshipped through its ports to avoid further U.S. tariffs.
Legal and Diplomatic Pressure
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WTO Lawsuits: China filed a World Trade Organization (WTO) lawsuit against U.S. tariffs in April 2025, but the U.S. counters with claims of China’s trade violations.
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Negotiations: The Trump administration is pressuring allies like Japan and South Korea to limit trade with China in exchange for tariff exemptions, though China has warned of “reciprocal countermeasures” against such deals.
Sector-Specific Measures
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Electronics Carve-Outs: In April 2025, the U.S. exempted some consumer electronics from the 245% tariffs to avoid consumer price spikes, but components remain targeted to pressure tech firms to relocate to the U.S. Nvidia and Apple announced U.S. investments in response.
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Port Fees: The U.S. imposed fees on China-built vessels to curb shipbuilding dominance, indirectly targeting logistics used for transshipment.
Challenges: The de minimis loophole allows small packages to enter tariff-free, complicating enforcement. Supply chain complexity and lax oversight in countries like Malaysia hinder progress.
Economic, Social, and Global Impacts
Economic Impacts
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China: Tariffs could reduce China’s GDP by 0.6–2.4% in 2025, with export-led sectors like textiles and electronics hit hardest. Deflation risks grow as firms offload excess inventory domestically.
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U.S.: Consumers face price hikes, with a high-end iPhone potentially costing $2,300. The Tax Foundation estimates a $1,300 per household tax increase in 2025. A 40% recession risk looms globally.
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Global: ASEAN economies suffer from U.S. tariffs, with Vietnam’s manufacturing sector at risk. Stock markets, including the S&P 500 (down 15% from February 2025), reflect fears of a global slowdown.
Social Sentiment in China
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Chinese citizens express concern over job losses, particularly for the 10–20 million workers in U.S.-bound export sectors. Social media censorship of tariff-related content reflects government efforts to control unrest, with hashtags like “tariff” blocked on Weibo by April 2025.
Global Trade Dynamics
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Allies’ Reactions: Canada, Mexico, and the EU have imposed retaliatory tariffs, while Australia and Japan criticize U.S. policies. China’s outreach to Spain, Saudi Arabia, and ASEAN aims to counter U.S. isolation efforts.
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Supply Chain Shifts: Firms like Honey-Can-Do International have moved production to Vietnam, but new tariffs on ASEAN reduce cost advantages, forcing further relocations.
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Deflation Risk: China’s push to new markets triggers price wars, exacerbating global deflationary pressures.
Strategic Implications
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China’s Resilience: Beijing’s seven-year preparation, including trade diversification and domestic stimulus, mitigates some tariff impacts. However, reliance on smaller markets limits scalability.
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U.S. Strategy: Trump’s tariffs aim to reshore manufacturing, with some success (e.g., Nvidia’s $500 million U.S. investment). Yet, carve-outs for electronics suggest a weaker position, as China’s refusal to back down forces U.S. concessions.
A High-Stakes Game of Whack-a-Mole
Chinese companies are dodging U.S. tariffs through transshipment, mislabeling, and diversification, leveraging hubs like Malaysia, Vietnam, and Mexico. These tactics, scaled rapidly since February 2025, exploit global supply chain gaps and lax enforcement. The U.S. counters with customs crackdowns, strategic tariffs, and diplomatic pressure, but loopholes and complex supply chains pose challenges. The trade war’s ripple effects—price hikes, job losses, and recession risks—threaten both nations and the global economy. As China courts new markets and the U.S. pushes allies to isolate Beijing, this “whack-a-mole” battle underscores the difficulty of decoupling the world’s top economies.
