The size of China’s ‘circumvention export’ through Vietnam and Mexico to avoid US trade sanctions has significantly increased in the past five years, according to a report released on the 6th. With the US likely to crack down on China’s circumvention exports ahead of the November presidential election, concerns are growing for domestic companies that have entered Vietnam and Mexico.
According to a report by the Korea International Trade Association (KITA) International Trade Research Institute released on the same day, China’s circumvention exports through Vietnam and Mexico to the US doubled in size from 2018, before the US imposed major tariffs. Specifically, circumvention exports through Vietnam to the US increased by 1.92 times, from $1.57 billion in 2018 to $3.02 billion in 2022, while exports through Mexico increased by 1.99 times, from $5.3 billion in 2018 to $10.55 billion in 2022.
The report analyzed that China’s circumvention exports through Vietnam significantly increased since 2019 when the US implemented Section 301 tariffs and the Uyghur Forced Labor Prevention Act. The report also stated that exports of key production items in the target industries of the Uyghur Forced Labor Prevention Act in China’s Xinjiang region (textiles, metal processing, electrical and optical equipment) increased significantly.
Exports through Mexico to the US mainly increased in the fields of electrical and optical equipment, pulp and paper, and transportation equipment. This is attributed to the impacts of the United States-Mexico-Canada Agreement (USMCA) and the Import Relief Act (IRA). As the USMCA and IRA provide incentives for production in the North American region, there has been an increase in Chinese companies establishing production bases in Mexico.
‘Gimmick exports’ through Vietnam and Mexico have also been evident in US import trends. As a result of the US raising tariffs on Chinese goods in 2019, imports from China decreased by 27.2%, from $320.9 billion in 2017 to $233.5 billion in 2023, and import dependence decreased by 7.5 percentage points. In contrast, imports from Mexico increased by $155.7 billion during the same period, becoming the top country in terms of increase. Imports from Vietnam also recorded the highest average growth rate of 12.7% annually.
Kim Na-yool, a researcher at the KITA, stated, “With the US presidential election approaching, there is a high possibility that the US will impose sanctions on circumvention exports to protect its domestic industries.” She advised that Korean companies that have entered Vietnam and Mexico monitor US policies related to the increased Chinese circumvention exports, review compliance with US import standards for intermediate goods, and thoroughly prepare relevant verification materials.