A growing number of Chinese companies are finding ways to evade President Donald Trump’s tariffs: remove the “Made in China” label by shifting manufacturing from China to countries such as Vietnam, Serbia, and Mexico. Chinese factories are moving abroad to skirt higher customs taxes on their exports to the United States and elsewhere, according to public filings. Hl Corp, a Shenzhen-listed bike parts maker, told investors it decided to move production to Vietnam.
On the coast near Ho Chi Minh City, dozens of factories import steel from China, galvanize it, strengthen it and then export it to the U.S. at prices that undercut American producers.
U.S. trade officials, however, say the companies and their Chinese suppliers are guilty of transshipping—routing goods through another country to illicitly disguise their origin.U.S. trade officials are zeroing in on Southeast Asian countries, including Thailand and Malaysia, as well, saying they are part of Chinese steelmakers’ efforts to evade trade restrictions.At Hoa Sen Group, a steelmaker that has grown to about 7,000 employees in recent years from 22, executives say that under international law, a metal product’s country of origin isn’t where the raw steel comes from, but rather the place where the galvanizing process, which protects it, happens.
Some analysts agree that galvanizing steel is a significant step that usually merits a new country-of-origin designation, depending on how much work was done to the initial steel product.Vietnam’s steel boom took off in the early 2000s, with small steel factories springing up around Vung Tau, close to Ho Chi Minh, Vietnam’s largest city.Instead, Vietnamese companies set up so-called rerolling factories, where flat-rolled coiled steel is rolled into stronger, thinner products. These facilities cost as little as $70 million to set up.
Hoa Sen, based in the mostly industrial Binh Duong province outside Ho Chi Minh City, was a leader in this kind of production. By its third year of operations in 2004, it had begun to specialize in color-coating rolled steel, a popular way to reinforce steel via a process that dips the sheet in zinc or other metals.
As production soared, Vietnam had far more steel than it could consume. Hoa Sen told U.S. regulators it began sourcing Chinese steel as early as 2002 and started selling to the U.S. around 2014. That is when metal began flowing from China to Vietnam as Sino-U.S. tensions rose over the steel trade.
In December, the U.S. determined that Vietnam’s exports contained “a significant portion” of Chinese steel and should be treated as Chinese. The Commerce Department said Malaysia, Thailand and several other countries were doing the same thing.
The ruling hinged on the department’s conclusion that the costs for steelmakers in Vietnam to increase the steel’s value with additional processing and rust-resistant coatings such as zinc, were “minor and insignificant,” compared with the costs incurred in China to operate mills and produce the steel.
Vietnam’s steel association said it would urge its government to file a complaint with the World Trade Organization, saying the ruling, as it stands now, will cause problems for Vietnamese steel exports.
“The U.S. steel tariffs will very negatively affect our business,” Nguyen Thanh Trung, chairman of Ton Dong A.
Meanwhile, Vietnam is building its own steelmaking furnaces. Formosa Ha Tinh Steel Corp., a Taiwanese steelmaker, opened a large mill in Vietnam last year and began churning out the type of material that the country’s factories can strengthen. It can then be exported as a Vietnamese product.
