The Costs of Circumventing Tariffs
In a Harvard Business Review article, Edmund Malesky and co-authors discuss findings from their work analyzing trade rerouting through Vietnam following the 2018 U.S.-China trade war.
With the U.S. levying tariffs against other countries, a key economic question that has arisen is whether companies in these targeted countries will circumvent these tariffs by rerouting goods through third-party countries.
In the Harvard Business Review article, "Research: The Costs of Circumventing Tariffs," Edmund Malesky, professor of political economy and director of the Duke Center for International Development, and co-authors Jaya Wen, Ebehi Iyoha and Sung-Ju Wu discuss findings from their recent work analyzing trade rerouting through Vietnam following the 2018 U.S.-China trade war.
The authors found that while tariff circumvention through Vietnam did happen, it wasn’t as widespread as many had initially thought. That said, there still was an increase in tariff circumvention more broadly, and specifically via Chinese-owned firms in Vietnam.
The findings suggest that if a country is considering implementing tariffs, a better approach might involve ownership-based duties or firm-specific sanctions instead of blanket tariffs.