In response to steep tariffs imposed by the United States, some Chinese exporters are increasingly routing goods through third countries to evade costs, according to the Financial Times. This trend has gained momentum since the Trump administration raised duties on Chinese imports to as high as 245 percent. Freight brokers are actively promoting "place-of-origin washing" services on Chinese social media platforms. Malaysia is emerging as a popular transit point due to its relatively low 24 per cent tariff.
"The tariff is too high," Sarah Ou, a salesperson at Baitai Lighting, an exporter based in the southern Chinese city of Zhongshan, told the Financial Times. "But we can sell the goods to neighbouring countries, and then the neighbouring countries sell them on to the United States, and it will reduce."
How 'Place-of-Origin Washing' Enables Tariff Evasion?
This process involves routing goods through third countries like Vietnam or Malaysia, where products undergo minimal processing or repackaging. New certificates of origin are then issued, falsely labeling items as locally made. This practice exploits loopholes in customs regulations, allowing goods to enter the US under reduced tariffs, thereby undermining trade policies and posing challenges for enforcement agencies.
The process typically includes:
- Creating false documents
- Using third-country warehouses
- Collaborating with proxy factories
- Obtaining New Certificates of Origin
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According to Malay Mail, the practice of transshipment has raised alarms about Malaysia's trade reputation, prompting calls from trade groups for investigations into fraudulent origin declarations. Malaysian Deputy Minister Chan Foong Hin has urged businesses to refrain from such practices, emphasising strengthened oversight in key industries like rubber gloves.
"The US has imposed tariffs on Chinese products? Transit through Malaysia to 'transform' into Southeast Asian goods!" said one advert posted this week on Xiaohongshu by an account under the name of "Ruby - Third Country Transshipment".
"The US has set limits on Chinese wooden flooring and tableware? 'Wash the origin' in Malaysia for smooth customs clearance!" it added. A person contacted through the details supplied in the advert declined to comment further.
South Korea has also reported significant violations, with its customs agency uncovering 29.5 billion won ($20.81 million) in country-of-origin fraud in the first quarter of 2025, predominantly linked to US-bound goods. A special task force has been established to combat these illegal exports.
As Chinese firms struggle to redirect products originally intended for US markets, the Chinese government is encouraging local consumption instead. However, offloading excess inventory could exacerbate China's deflationary pressures and affect hiring. Analysts caution that if negotiations between China and the US do not progress, price increases and shortages may occur in the US market.
