Introduction ------------ Transshipment is reshaping trade patterns between the United States and China by shifting a growing share of bilateral commerce into indirect flows through third countries rather than eliminating underlying economic linkages. As tariffs and trade restrictions have intensified, direct bilateral trade has declined in relative terms, while exports routed through economies such as Mexico and Vietnam have expanded, reflecting adjustments within global value chains rather than a full decoupling[1][2][3]. Contextual background --------------------- Transshipment refers to goods passing through a third country before entering the destination market, sometimes involving limited processing that alters origin classification. In this context, “transshipment” refers to goods moving through a third country before entering the US market, sometimes with meaningful new processing and sometimes with very little domestic value added. That distinction matters because some of the observed shift reflects genuine production relocation, while some reflects rerouting that preserves a high level of Chinese content under a different export origin[2]. How transshipments are reshaping trade patterns ----------------------------------------------- ### 1. Decline in direct bilateral trade alongside rising third-country trade China’s share of US imports declined between 2017 and 2022, while imports from alternative suppliers — including Mexico and several Southeast Asian economies — increased[3]. At the same time, indirect trade flows through third countries have expanded, indicating that part of the observed shift reflects rerouting rather than a complete substitution away from Chinese production[1][3]. ### 2. Expansion of third-country intermediaries in global value chains A group of third-country intermediaries has assumed a larger role in connecting Chinese production with US demand[1][2]. Economies such as Vietnam and Mexico have gained export share by serving as locations for final assembly or processing. This redistribution of trade reflects supply chain diversification strategies, while preserving China’s role within upstream segments of production networks[1][4][5]. ### 3. Trade diversion versus production relocation The increase in exports from third countries reflects a combination of trade diversion and genuine production relocation. Value-added analysis indicates that, in some cases — particularly Vietnam — export growth to the United States has been accompanied by rising domestic production and local value added[2]. In other cases, gains are more consistent with rerouting of goods with significant foreign content. This variation highlights that not all shifts in trade patterns represent structural changes in production[2][3]. ### 4. China remains central through intermediate goods and production networks Despite the decline in direct exports to the United States, China remains central as a supplier of intermediate inputs within regional production networks. In Asia, the expansion of intra-regional trade in intermediate goods reflects continued reliance on Chinese manufacturing capacity, even when final goods are exported to the United States from third countries[4]. This indicates that supply chains have become more geographically distributed while retaining China’s upstream role[2][4]. ### 5. Increased enforcement of rules of origin and anti-circumvention measures The rise in transshipment has prompted stronger enforcement of rules-of-origin requirements and greater scrutiny of circumvention practices. US customs authorities have intensified investigations into goods routed through third countries to evade duties, particularly in sectors subject to trade remedies[6]. These measures aim to distinguish between legitimate production relocation and tariff avoidance, but also increase compliance costs for firms operating across multiple jurisdictions. Conclusion ---------- Transshipment is reorganizing rather than severing US-China trade relations. Direct bilateral trade has declined, but indirect trade through third countries has expanded, preserving underlying interdependence within global value chains. The result is a more indirect and less visible form of integration, where production is geographically dispersed but remains interconnected through intermediate inputs and regional supply networks.
