Apparently, all is not fair in economic love or the tariff wars.
With the White House as judge, it’s perfectly appropriate – and maybe legal – for Donald Trump to set variable tariffs wholesale on nations or even on the entire globe, but it’s not okay for other countries to try to evade tariffs.
That’s the gist of a 25-page report, titled “The Great Transshipment Scam” released last week by the White House Office of Trade and Manufacturing Policy, which is led by trade adviser Peter Navarro.
The name is a dead giveaway to what is presented as an anti-American plot to defraud this country of collecting tens of billions of dollars in import fees by sending products through third countries with lower tariffs than originating nations. Of course, it just as easily could be told as a story of using the existing rules to duck stupidly arbitrarily trade limits set by Donald Trump based on his personal assessment about what a “trade deficit” should look like on a nation-by-nation basis, regardless of whether we don’t grow bananas that we must import.
In short, if China sends an item for U.S. import through Mexico, it is doing so to avoid tariffs set for Chinese goods. Mexico, part of a special, if expiring trade agreement with the U.S. pays nothing. Add up cars and parts, dishwashers and appliances, and now even trombones and tubas, and Navarro argues that the U.S. is being cheated out of billions.
Of course, Navarro never acknowledges that it is U.S. importers who pay the tariffs, not the Chinese or Mexicans, and that cost is being passed on to American consumers.
Meanwhile, Trump is threatening global trade altogether if he cannot have his way with the Fed to lower U.S. interest rates, a policy that runs afoul even of what his own new Fed chair appointee, Kevin Warsh, says is needed to battle inflation that Trump is worsening by unending war and a throttled Strait of Hormuz.
How Transshipment Works
The story is better told by Navarro himself in a New York Times op-ed than in the entire report, which is written in governmental language and filled with generalities. Navarro, you will recall, is a Trump policy advisor for trade and manufacturing who went to jail for contempt of Congress.
Navarro uses a Vietnamese-made recliner as an example. Its motor is made in China, which ships it finished to Vietnam for insertion in the chair before being shipped to Norfolk, Va. It is declared a product of Vietnam, erasing 25 percentage points of U.S. tariff that would be levied– paid by the American importer, of course.
The Transshipment Scam report says a “shadow network of more than 40 countries (is) enabling sleight of hand to deceive American consumers and customs officials about where those countries’ exports really originate.” The cost is north of $40 billion a year from China alone and decreased U.S. manufacturing jobs, says Navarro.
Of course, in business terms, transshipment reflects multi-country manufacture and international supply lines, and the ever-present desire to make money – this time by exploiting the difference in a tax. “The difference becomes a profit opportunity, and even a business model in its own right,” says Navarro. “Ship $1 billion of Chinese goods straight to an American port, and the duty can run to several hundred million dollars. Send the identical goods through Vietnam, Malaysia or Thailand, and most of that bill disappears.”
Navarro notes that foreign-built motors or industrial parts and shipping to the U.S. rightly should be built in America, the underpinning logic of tariffs altogether. But for a variety of reasons, including higher U.S. wages, it is American companies that have been shipping manufacturing overseas for decades. Tariffs – again, paid by Americans, not Chinese or Vietnamese or Europeans – are only increasing the cost of supplies not grown or produced in quantity in the U.S.
Trump’s recent executive order targets the weaknesses that transshippers exploit — shell companies with no U.S. assets, opaque ownership structures, and repeat violators that dissolve and reopen under a new name, Navarro notes. And Customs and Border Protection is contracting for a new artificial intelligence-enabled inspection system, called Detective Border, to assess transshipment risk in every ship leaving every port carrying cargo bound for the United States. Hmm. I wonder how that works.
Right or Might?
Meanwhile, Trump’s declaration of global tariffs with various arbitrary rates for national trade imbalances were declared illegal by the Supreme Court. Trump has since found new justifications for some substitute tariffs that the White House will withstand legal challenge.
Of course, Trump continues to blast Supreme Court judges for resisting his desires about what the law or the Constitution should say.
Unchanged is that tariffs are contributing to higher prices in the U.S. and not producing a flood of new manufacturing. In those cases of promised return of manufacture, the workflows are based on heavy use of robotics and AI, keeping job creation to a minimum. The mass deportation campaign is eliminating labor for the most routine of manufacturing jobs.
No matter how high-minded the Navarro argument for reduced international trade barriers – an argument that runs counter to U.S. tariffs as their own barrier – he omits the most tangible effects that are driving U.S. voters to want to throw out incumbents from both parties at the earliest opportunity.
From the Trump White House, the message to both American and international audiences is the same. The rules need to say that this White House wins, or else everyone else needs to lose.
Terry H. Schwadron retired as a senior editor at The New York Times, Deputy Managing Editor at The Los Angeles Times and leadership jobs at The Providence (RI) Journal-Bulletin. He was part of a Pulitzer Gold Medal team in Los Angeles, and his team part of several Pulitzers in New York.