China has vowed to use its new container port in Chancay, Peru to boost trade with South American countries – and create an alternative channel to ship its products to the United States.
In 2019, the state-owned Cosco Shipping Ports acquired 60% of the Chancay port from a Peruvian polymetallic miner for US$225 million. It then invested US$3.5 billion to upgrade the port. Xinhua said the first phase of the port project shortens the shipping time between Peru and China from 35 to 23 days, saving more than 20% in logistics costs.
Chinese President Xi Jinping inaugurated the Chancay megaport via an online ceremony in Peru on November 14. Since then, Chinese media and commentators have been promoting this facility’s expected role in helping China increase trade and implement its Belt and Road Initiative. Of particular interest to US trade warriors, the pundits claim that Chinese exporters can use the Chancay port’s nearby industrial parks as a “bathing base” to relabel or repackage their goods and ship them to the US.
How that will work out remains to be seen. Mauricio Claver-Carone, an adviser to US President-elect Donald Trump’s transition team, has said that the 60% tariffs that Trump has vowed to impose on Chinese goods would also apply to goods that pass through the new Chancay deep-water port from any country.
“Any product going through Chancay or any Chinese-owned or controlled port in the region should be subject to 60% tariff, as if the product was from China,” Bloomberg quoted Claver-Carone as saying in a phone interview.
He added that the duty would help the US guard against transshipment, a process through which Chinese goods enter a third country and then get re-exported to the US at lower tariff rates than direct shipments.
He said transshipment in Latin American countries, such as Mexico, has been a key concern to the US for some time.
Follows ‘bathing bases’ in Vietnam, Mexico
Indeed, some Chinese commentators note that this is by no means the first time China has set up “bathing bases” overseas for the transshipment of its products.
“Because of the growing trade friction between China and the US, more and more Chinese companies are willing to assemble their semi-finished products in Vietnam or simply ‘take a bath’ by sticking ‘Made in Vietnam’ labels on them and re-exporting them to the US and Europe,” a Hubei-based columnist using the pseudonym “Yinlujiao” writes in an article.
“Chinese photovoltaic products account for more than 90% of the global market share, and their export destinations are mainly Europe and the US,” he says. “But in recent years, trade barriers of Europe and the US have forced Chinese solar product makers to build factories and assemble their semi-finished products in Vietnam in order to avoid extra tariffs.”
He says Chinese manufacturers, suppliers and middle managers have contributed a lot to the fast-growing textile and electronics sectors in Vietnam in recent years.
Besides, many Chinese automobile, computer and construction equipment makers have also set up operations in the United States’ North American neighbor Mexico to try to “wash away” their products’ country of origin and rebrand their products as “Made in Mexico.”
Sophisticated re-exports
While US officials claimed that the move could fix a major loophole that China had relied on to avoid US tariffs, the Global Times said the new tariffs are largely symbolic as the US is not a major market destination for Chinese steel and aluminum products.
According to Ma Yu-chun, assistant research fellow at the Chung-Hua Institute for Economic Research, since the 2018 onset of the US-China trade war Chinese manufacturers have used Vietnam and Mexico as logistics hubs to avoid an extra 25% US tariff.
When Washington started complaining about these transshipments, Ma says, Chinese manufacturers gradually increased their local production capacities in Vietnam and Mexico to continue to enjoy low US tariffs. In such circumstances, he says, the US has to tighten its rules further – for example, by imposing tariffs on products that use Chinese components.
A Beijing-based writer using the pseudonym “Huashan Qiongjian” says that the Trump administration may not want to impose extra tariffs on goods coming from Peru as the US has a trade surplus with the South American country.
In July this year, the Biden administration announced that steel products from Mexico will face a 25% tariff, unless they are melted and poured in Mexico, Canada or the US.
“Trump tends to blame countries that have trade surplus with the US, such as China and Mexico, but rarely complains about South American countries,” he says.
Besides, he says, Chinese goods can first go to Japan, South Korea and Southeast Asia before departing for Chancay port. He says this practice can help China boost trade ties with neighboring countries.
In short, Beijing’s strategy to fight Trump’s war is simple: Ship its products to and assemble them in third countries before re-exporting them to the US. The more sophisticated the network, the more difficult it is for the US to impose extra tariffs.
Yong Jian, a Chinese journalist who specializes in Chinese technology, economy and politics, is a regular contributor to Asia Times.
Read: US slaps ‘symbolic’ tariffs on China steel, aluminum
Read: Note to Trump: Targeted tariffs can work, broad ones never do
Read: China calculates impact of losing most favored nation status
Read: Trump tariffs as ploy for making a big deal with China
Read: Indonesia rebuffs China’s Global South trade drive
