US 40% Trans-Shipment Tariff Expected to Disrupt ASEAN India Supply Chains Moody's

The United States, under President Donald Trump, has imposed a 40 percent trans-shipment tariff targeting goods deemed to have been transshipped, primarily aimed at products originating from China but routed through countries with lower tariffs, including India and ASEAN nations. Moody's Ratings warns this tariff will create significant compliance challenges and risks, especially for sectors such as machinery, electrical equipment, semiconductors, and consumer optical products, which largely involve intermediate rather than final goods. The lack of clarity on the definition of trans-shipment by the US administration increases uncertainty, with potential interpretations ranging from narrow targeting of minimally processed Chinese goods to broader inclusion of any goods with significant Chinese content. This tariff is expected to heighten due diligence and certification requirements for exporters, who must prove "substantial transformation" to avoid penalties. While the tariff aims to prevent tariff evasion via transshipment, a legal practice used for logistical efficiency, Moody's suggests a broad application could disrupt Asia-Pacific supply chains and impact regional economies negatively. Despite these challenges, ASEAN’s manufacturing competitiveness may remain intact due to lower labor costs and diversification strategies away from China.