The imposition of tariff by the Trump administration 2.0 as a mechanism to address trade deficits, had sent shock waves around the world. The major aspect of this tariff war is the escalating U.S.-China trade tensions. As a result, the U.S. duties on Chinese imports which initially was imposed at 10% in February reached to 245% by May. On the other hand, China retaliated with tariffs up to 125% on U.S. goods along with imposition of restriction on both export of rare earth minerals and its separation technology; and blacklisting U.S. firms.
What is Origin Washing?
Given the complex scenario, this has pushed Chinese companies to explore new ways to evade the tariff barriers. This has led to “origin washing”, in which the Chinese companies ship their goods to Southeast Asia countries like Malaysia, Vietnam and Thailand, relabeled with a new country of origin or processed minimally and then re-exported to the U.S. The fact that these third countries are comparatively minimally affected by Trump’s tariff war, makes them lucrative for “origin washing”.
The motive “origin washing” is to avoid tariffs by rerouting goods through a third country. It is also known as illegal transshipment. The key part of the process is the creation of fake documents of goods which shields the exporter from legal exposure.
There are reports which suggests that Chinese social media platforms like Xiaohongshu (RedNote) and Douyin (the Chinese counterpart of TikTok) have offered comprehensive options to exporters for re-export and freight forward services through third countries like Malaysia, Thailand and Vietnam for obtaining new certificates of origin and then shipping to the U.S.
Given the fact that to qualify for new origin under the U.S. law, products must undergo substantial transformation which adds material value. Therefore, the repacking and modifying of the origin of products offers a better escape route from the stringent tariff laws.
A Risky work around
Moreover, as the US tariffs is intense for the small and mid-sized Chinese firms and they are dependent on the U.S. buyers, hence these companies have resorted to grey-areas workaround. As a result, the U.S. is losing out on its intended protectionist policy outcomes, and other countries are being dragged in the situation. As the third countries have become a transshipment point for trade directed to the U.S., there is a probability that it might affect their respective bilateral relation with the U.S. in the longer run.
China’s daily Global Times in an article published in December 2024 has stated that there is a credible lack of evidence in regard to China’s “origin-washing”. Rather, it is an excuse used by the U.S. to justify its increasing trade protectionism.
Responses from these third countries
Given the scenario of “origin washing” and the risks associated, these third countries have resorted to adopting strict policies which aim to check cases of origin washing. For instance, Vietnam’s Ministry of Industry and Trade in April called on local trade associations, exporters and manufacturers to strengthen origin controls for raw materials and manufactured goods and prevent the issuance of fraudulent certificates. Based on the new procedural restrictions, factories will supervise the release of “Made in Vietnam” labels.
Similarly, Thailand’s Department of Foreign Trade has also announced new-verification measures and monitoring the high-risked products shipped to the U.S., as a mechanism to prevent tariff evasion. In addition, this department is entrusted with the responsibility to actively review 65-high risk product categories (244 tariff codes) for potential origin misrepresentation.
Malaysia has also urged Chinese companies to refrain from using it as a base to “rebadge” products to avoid U.S. tariffs. On the other hand, Taiwan’s Bureau of Foreign Trade on 7th May announced that all products manufactured in Taiwan and exported to the U.S must include a signed declaration of origin.
Singapore-washing
However, according to an article published by The Japan Times in 2024, as the rivalry between the U.S. and China has peaked, foreign companies have started to change domicile as way to evade excessive scrutiny, tariffs and sanctions. The article went on to state that this phenomenon has become so common that private equity and asset management industries have begun to relocate themselves from China to Singapore which is often characterised as “Singapore-washing”. It brings us to the point that as the U.S. continue to pursue protectionist policies and tariff war, manufacturing giants like China will persist to look for alternatives like that of “origin washing” to use third country as the gateway the U.S. and its markets.
