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The tariff imposed by the US administration on products in trans-shipment, on top of country-level tariffs, would be economically damaging for the Asia-Pacific (APAC) supply chain, says the latest report by New York-based analytics and data tools provider, Moody’s Corporation.

On July 31 this year, US President Donald Trump announced a 40 per cent tariff on goods deemed to have been trans-shipped. 

In its report, titled, ‘Trade – Asia-Pacific’, Moody’s said on Tuesday that not only does the definition of ‘trans-shipment’ remain unclear in this case, the high additional tariff will create major compliance issues for companies in India and the ASEAN region, with high risks for sectors like machinery, electrical equipment and semiconductors.

Trans-shipment refers to the legal practice where goods are transferred between vehicles, like ships and trains, at hubs when no direct route exists between export and import locations.

Trans-shipped products are concentrated in intermediate inputs instead of final consumer goods, with the term trans-shipment being mentioned explicitly in recent trade agreements entered into by the US. 

 

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If the US maintains a narrow interpretation – targeting only goods imported from China, minimally processed or re-labelled and re-exported to the US – the economic impact on regional economies may be limited, said the agency, however, a broader and more punitive interpretation – where goods with any significant Chinese input are also deemed in violation – could prove economically damaging for the Asia-Pacific (APAC) supply chain.

The trans-shipment tariff will likely create major compliance issues for ASEAN’s private sector, requiring increased due diligence and certification from exporters, who will need to prove “substantial transformation” to avoid US penalties, it added.

The measures clearly appear to target products originating in China and shipping through third countries with lower tariffs, said Moody’s, saying its analysis suggests that the sectors most likely to face trans-shipment risks across ASEAN, India and Mexico include machinery, electrical equipment and consumer optical products, including semiconductors.

While trans-shipment can enhance logistical planning, reduce costs, and support global supply chain flexibility, it can also be used to disguise the origin of goods to evade tariffs, particularly in response to US-China trade tensions.