By Ana Malamud
China has shattered records with a historic trade surplus in 2024 despite tariffs, COVID disruptions and geopolitical turmoil. While the prevailing narrative suggests that the United States and China are breaking economic ties, the data tells a different story—global trade patterns have largely remained intact, with supply chains simply rearranging. In this context, China has deployed various tactics, including transshipment and offshore manufacturing, to get around regulations and continue supplying the U.S. with its products.
Efforts To Decouple From China
Until 2019, China was the United State’s largest trading partner. That changed in 2020, when Mexico took the top spot — a shift coinciding with Trump’s 2018 tariffs, which marked the start of a trade war with China. Since then, Washington has pursued a strategy of “decoupling,” urging to cut off economic ties with China. For example, Apple shifted iPhone production to India and Vietnam, while Chinese companies like TikTok and Huawei faced intense scrutiny from American lawmakers and came close to being banned. High-tech products, such as semiconductors, also faced restrictions on exports to China. While maintaining his tough stance, Trump doubled down during his second term, raising tariffs again on all Chinese imports to further solidify his earlier trade measures.
Yet, despite these efforts, China’s trade surplus hit a historic high in 2024, surging 20 per cent from the previous year. This raises a critical question: If the U.S. is working so hard to sever economic ties, why is China still thriving in global trade? While Beijing may have found new buyers, a closer look at trade flows suggests that the U.S. and China are more interdependent than it seems.
Decoupling, or Just a Supply Chain Reshuffle?
“We are still interconnected indirectly,” said Brad Setser, an economist and senior fellow at the Council on Foreign Relations, when discussing U.S.-China commercial relations. “Even though we have less direct bilateral trade in a global sense, there’s one surplus country—China—and one deficit country—the U.S.”
Indeed, while tariffs and geopolitical tensions have reshaped trade routes, they have not altered the fundamental roles of China as a global exporter and the U.S. as a major importer. Meanwhile, U.S. imports from China, though officially lower, have been replaced by rising imports from intermediary nations, such as Vietnam or Mexico, many of which source components or finished goods from China itself. Analysis by the Bank for International Settlements confirms that supply chains are becoming longer and more complex, but origins from China remain mostly unchanged.
In this context, China has developed a range of sophisticated tactics to bypass U.S. trade restrictions and maintain access to the American market, despite mounting regulations.
Finding the Grey Areas: China Does Not Ship Directly to the U.S.
One of China’s most striking strategies is transshipment. Instead of shipping goods directly to the American country, Chinese manufacturers reroute them through intermediary nations like Mexico or Vietnam. Once these products are exported from a third country, they are no longer classified as "Made in China" but instead take on the origin of their last stop. As Gita Gopinath from the International Monetary Fund describes, these nations act as “connector countries,” enabling China to sidestep tariffs. Mexico, in particular, is an attractive option due to its free trade agreement with the U.S., which grants it preferential trade treatment. As a result, while direct U.S.-China trade has declined, imports from Mexico, Vietnam and Taiwan have surged. Though this shift is not solely due to rerouting, trade reshuffling plays a crucial role.
Offshore Manufacturing to Change the Product Origin
Setting up factories outside China is another way to change product origin and get around hefty taxes. There has been a rise of Chinese companies opening factories and subsidiaries outside the country, particularly in neighboring Asian countries and Latin America. In parallel, U.S. imports from those countries have surged — so much so that the U.S. has now become the largest customer for Southeast Asian goods. In a similar vein, when Washington decided to make critical minerals and EV batteries from China non-eligible to receive government subsidies, Chinese firms rushed to set up battery-making subsidiaries in Morocco and Singapore to still benefit from government aid. Once again, by adding another stop in the supply chain, Chinese products still find their way into the U.S.
The ‘De Minimis’ Exemption: A Legal Loophole Exploited to the Fullest
A major grey area in U.S. trade regulations is the de minimis threshold, which exempts imports under 800 dollars from paying duties. Chinese e-commerce giants like Shein and Temu have taken full advantage of it, flooding the U.S. with low-cost products. In 2018, 208 million packages from China claimed de minimis status. Five years later, that number skyrocketed by 208 per cent, highlighting how companies make use of this rule to evade tariffs.
Confronting China’s Practices
U.S. businesses and policymakers have taken notice of China’s creative strategies. Milton Magnus, CEO of a company affected by these practices, warned that China has been “evading the order by transshipping through other countries, hopping from country to country, changing the names, shifting shipments, just to stay ahead of us.”
In response, lawmakers introduced the Protecting American Industry and Labor from International Trade Crimes Act, a bipartisan bill aimed at cracking down on duty evasion and trade fraud. The legislation increases enforcement funding to strengthen rule compliance. Although talks on the regulations were put on hold, the Trump administration has now restarted discussions to move the measure forward.
Trump also took steps to curb these tactics by revoking the de minimis exemption for all imports from China, aiming to stop low-value shipments from avoiding tariffs. However, just days later, the American president issued an executive order temporarily reinstating the exemption due to the authorities' inability to manage the surge in customs entries. A more efficient system for processing these imports is currently being developed.
Meanwhile, China's rerouting through Mexico has sparked concerns over the free trade agreement with Mexico and Canada. Policymakers are questioning whether the trade deal is inadvertently being exploited by Chinese companies to sneak products into the U.S. market through the back door.
A Trade War with No Exit
Despite the efforts, reversing deep-rooted economic interdependencies is not as simple as flipping a switch. Market forces find ways to adapt, reshuffling supply chains rather than severing them. As a result, global trade has become more intricate, with goods taking longer, more convoluted paths—but ultimately still flowing to their ultimate destination. Beneath these shifting routes, the fundamental forces that have long shaped trade remain mostly unchanged. The U.S. and China may be redefining their relationship, but true decoupling remains elusive.
Sources: CNBC, The Economist, Harvard Business Review, International Monetary Fund, The Wire China, The New York Times, CSIS, Reuters, Financial Times, National Bureau of Economic Research.
Written by Ana Malamud
Edited by Nina Gush & Sarah Valkenburg
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