Chinese exports, aided by tariff dodging, defy Trump’s trade pressure

President Donald Trump’s effective trade embargo on China has not dented exports from the world’s largest manufacturer, which offset plummeting shipments to the United States with a surge in sales to Southeast Asia, boosting Beijing’s defiant stance ahead of talks this weekend.

The rise in exports to Vietnam, Malaysia, Indonesia and Thailand – all countries identified by analysts as rerouting hubs – shows how China is increasingly shipping products through third countries to keep goods flowing.

“The thing about trade is when there are huge arbitrage opportunities, people are going to find a way to take advantage of them, legally or illegally,” said Caroline Freund, an expert on international trade at the University of California at San Diego. “It’s like a river. You can keep putting rocks in, but the water’s going to keep flowing down.”

The overall value of China’s outbound trade rose 8% year-on-year in April, according to China Customs data released Friday, following steady increases in the months since Trump took office.

Exports to the U.S. fell by 21% last month, when Trump raised the minimum tariff of 145% on Chinese goods and Beijing responded with 125% tariffs on all American goods. The two sides will sit down in Geneva this weekend for their first talks on trying to de-escalate their trade war, although hopes for a breakthrough are low.

Friday’s data underscored an emerging contradiction in the trade conflict between the world’s two largest economies: U.S. importers are buying less from China but Chinese exporters are shipping as much as before. Shipments to Southeast Asian countries were up by 21%, contributing to last month’s stronger-than-expected overall export growth.

This suggests that Chinese exporters are acting to circumvent Trump’s tariffs.

Since the first U.S.-China trade conflict began in 2018, during Trump’s first term in the White House, Chinese exporters have deployed a range of tactics – both legal and illegal – to evade American tariffs, according to trade analysts and lawyers representing U.S. buyers.

These range from forging documents and underpricing goods on customs forms to setting up production in third countries or using fake origin labels in an intermediate country before shipping onward to the U.S., a practice known as transshipment.

After Trump’s first term, U.S. imports of Chinese goods that were subject to tariffs decreased, according to U.S. data. But trade was merely being diverted, not stopped: Researchers found that the countries Americans turned to, to make up for that shortfall – including Canada and Mexico as well as the European Union and Southeast Asian countries – saw an increase in imports of the same goods from China.

At the same time, Chinese manufacturers have moved production overseas. That has given them more export options and also made it easier to send unfinished goods for final assembly outside China – another way U.S. officials accuse Chinese companies of skirting tariffs.

“From China’s perspective, it hasn’t diversified away from the U.S. as a final customer. It’s just that it has been intermediated by third economies,” said Gerard DiPippo, an expert on the Chinese economy at RAND, a think tank.

In launching an all-out trade war with China, Trump took aim at something Chinese leader Xi Jinping considers essential to the country’s growing wealth and power: its central position in global production of everything from clothing to solar panels.

Beijing, therefore, has little incentive to prevent its exporters from finding creative ways to keep selling to Americans, despite tariffs. In the weeks since the White House imposed tariffs as high as 245% on some Chinese goods, ads have proliferated across Chinese social media promising easy solutions to bypass U.S. levies.

“Say goodbye to U.S. tariffs” using a process as simple as “choosing the ‘not spicy’ option at a hot pot restaurant,” one Chinese logistics company, Shanghai Xiangcheng International Freight Forwarding, declared on the short video app Xiaohongshu.

Another firm, HC Transit, listed examples of its tariff-skirting methods on a large banner on its website, saying it has shipped mattresses through Singapore and steel plates through India to the U.S. to avoid duties.

It said it offers “totally neutral packaging” without any Chinese language or information that could tie it back to the original producer, the company said. (An employee who answered the company’s publicly listed number declined to answer questions.)

While experts warn it’s too early to tell how common or successful these most blatant violations will be, there are signs of a widespread effort to find work-arounds in the city of Yiwu, the Chinese city that is home to the world’s biggest wholesale market of consumer goods.

Its 75,000 merchants fill a sprawling complex with floor space the size of more than 1,000 football fields, and American importers go there to place bulk orders of Halloween costumes, Christmas decorations and election campaign merchandise.

Lighting manufacturer Chen Quanzhen, who sells Halloween-themed lanterns covered in ghouls and skeletons, acknowledged that transshipment was taking place, but claimed it was her American clients that organized the port transfers, without disclosing details. Inquiries have fallen off, but thanks to rerouting “we are basically still shipping as normal,” Chen said.

Local logistics companies with overseas warehouses have advertised their ability to reroute trade, although agents say that it is becoming harder under Trump.

The most difficult step is obtaining a certificate of origin from increasingly vigilant authorities in intermediate countries such as Thailand and Vietnam, said Fan Zhixi, marketing manager at Yida International, a logistics firm based in Yiwu.

Fan claimed her company only facilitates legal transshipment and does not help clients obtain certification, noting that exporters with factories in the country used to reroute trade usually have more luck getting papers.

By levying tariffs on all countries simultaneously – although countries including Vietnam and Thailand have won a 90-day reprieve while they try to negotiate a deal – and cracking down on customs fraud, Trump has attempted to put a stop to these work-arounds.

He may have some success, experts said.

“Now it’s a lot harder to tariff-hop from one country to another,” said Mark Ludwikowski, senior director at Clark Hill, which represents Chinese exporters and U.S.-based importers.

Zack Hadzismajlovic of McCarter & English law firm in New York, who advises U.S.-based importers, said he has seen a lot more requests from U.S. customs asking for additional information. “I would say right now is not a good time to test customs,” he said.

The increasing globalization of Chinese manufacturing – Chinese makers of electric cars and consumer electronics have invested heavily in overseas factories – is partly an attempt to break into local markets.

But it can also be a front for transshipment.

The U.S. Department of Commerce has accused Chinese government-subsidized solar panel manufacturers in Southeast Asia of flooding the U.S. market with cheap products. That claim was made in part because the companies were deemed to do insufficient processing outside China.

“U. S. tariffs on Chinese goods are a direct motivation for expanding to Vietnam,” said Jaya Wen, an associate professor at the Harvard Business School who co-authored research showing that rerouting of Chinese goods through the country has risen by as much as 21% since 2018.

Although Vietnam is under pressure to crack down, incentives for legitimate and evasive trade will remain so long as U.S. tariffs on the country are significantly lower than on China, Wen said.

It’s not just factories that are moving overseas. The Yiwu market itself has gone global since Trump’s first term.

State-owned Yiwu China Commodities City has set up several offshore hubs in locations with preferential tax rules, where Yiwu businesses can both sell locally and ship items to other locations.

In February, local officials visited Dubai to discuss how one of the largest overseas Yiwu-branded markets, established in the Jebel Ali Free Zone in 2022, could help to Chinese exporters reduce risks by rerouting trade through the Gulf state.

There has been a noticeable increase in inquiries from Chinese companies to set up a presence in Dubai after Trump imposed tariffs, said Tina Xu, who works at the Yiwu market in Dubai.

“If a company comes here and sets up a company or factory, giving them a local certificate of origin, then they can bypass the impact of the tariff war on China,” she said. Certain industries subject to sanctions such as solar panels or semiconductors can be tricky, Xu added, but “it’s not impossible, just relatively complicated.”

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Vic Chiang in Taipei, Taiwan, contributed to this report.