Difficult situation for Asian countries outside China – Commerzbank

It was probably only a matter of time before reports began to emerge that Chinese companies were trying to reroute their goods through other Asian countries for export to the US. This should come as no surprise, given that tariffs on Chinese goods are too high, those on goods from other Asian countries are too low in comparison, and US demand for cheap Chinese goods is too high, Commerzbank's FX analyst Michael Pfister notes.

Chinese export rerouting sparks tension across asia

"The Asian countries through which the goods are being diverted are unlikely to be happy about these reports. After all, they are likely to make negotiations with Donald Trump much more difficult. And the countries will certainly want to avoid the much higher reciprocal tariffs coming back into force after the 90 days, which means they will be keen to conclude negotiations on a trade deal by then. No wonder, then, that the affected countries in the above report have gone to great lengths to emphasise their willingness to act."

"Even during Donald Trump's first term, it was an open secret that Chinese manufacturers were shipping their goods through Southeast Asia. At the time, the US ultimately tolerated this. It is questionable whether the outcome will be the same this time. After all, with enough effort it is possible to determine where a product was originally made. And for the country of origin to be changed, there must be significant value added in the new country of origin. Asian countries will certainly make it clear that they will not tolerate this."

"The latter would reduce the risk of stagflation (as goods would become much cheaper), but it would also run counter to Trump's goal of reducing the US trade deficit. Is Trump really prepared to turn a blind eye to one of his most important goals? I wouldn't bet on it, which is what makes these reports so dangerous for Asian countries outside of China."