Despite many of President Donald Trump’s tariffs, the trade deficit has barely budged. Some of those tariffs will remain in place even in the face of Friday’s Supreme Court ruling.

The tariffs have been successful, though, in weaning the U.S. off Chinese goods. Imports from the country are down about 30% … at least on paper.

But increasingly, people are using “transhipping” to get around tariffs. In the most basic sense, transshipping is like commercial air travel, according to Pawan Joshi, chief strategy officer at the supply chain platform e2open.

“If we have a direct flight, we’ll take that. But if we don’t have a direct flight” — or if companies wish to save some money — “we connect through an airport,” he said.

This practice of transshipping goods stopping for a layover before they come to the U.S. is almost as old as global trade itself. But Ebehi Iyoha, a professor of business administration at Harvard, said there’s been an uptick in transshipping with tariffs.

“That creates an incentive to pretend that goods made in China were really made somewhere else,” she said.

That pretending is very much illegal. But companies get away with it because customs fraud cases are complex to prove.

Iyoa said there’s also a legal way to use transshipping to avoid tariffs: “I might import a finished good from a different country, bundle it with something else that I am producing, and then sell them together.”

A manufacturer might ship components from China and assemble them in Vietnam before importing the product to the U.S., said Julie Niederhoff, a professor of supply chain management at Syracuse University. In that case, the company could claim Vietnam as the country of origin and avoid Chinese tariffs if the product has undergone a ”substantial transformation.”

Problem is, “there’s no clear definition on how we define and categorize that ‘substantial transformation,’” Niederhoff said.

Trade law would have to define what that means for every product — from bikes to furniture to construction equipment. And experts say as long as the rules are murky and as long as we have different import taxes for different countries, transshipping is a part of the supply chain.

Related Topics