Moody’s Warning on US Trans-Shipment: New Delhi. Due to the recent steps of the US government, clouds of crisis are looming over the companies of India and many Asian countries. American rating agency Moody’s has warned that the 40% trans-shipment tariff imposed by the US may cause huge losses to companies of Indian and ASEAN countries. Its direct impact can be seen especially on machinery, electrical equipment and semiconductor sectors.
Moody’s Warning on US Trans-Shipment
In fact, US President Donald Trump had announced on July 31 that he would impose an additional duty of 40% on goods that are sent to America “via a third country”. This means that if any goods reach America through a third country to avoid import duty, then heavy tariffs will now be imposed on it.
This new tax will be applied on top of existing country-level charges, increasing both costs and compliance for companies doing international business.
Moody’s said in its report titled “Impact on Asia-Pacific Trade” that it is not yet clear how the Trump administration will define “trans-shipment”. If this definition is kept limited and applies only to goods that are made in China and sent to the US from other countries after light processing or re-labeling, then the impact will not be very large.
But if the US makes its definition very broad and includes all goods that contain any part of sugar content, the impact will be profound.
Many Indian industries, especially machinery, electronics, electrical equipment, consumer optics and semiconductors, are dependent on raw materials imported from China. In such a situation, if America also brings products with Chinese components in the category of trans-shipment, then it will become expensive and complicated for Indian companies to export.
Moody’s says many companies will now have to prove that their products have been “significantly altered” to avoid US tariffs. That means they will have to go through additional changes in production processes and the certification process. This will increase time, cost and administrative pressure.
Moody’s has warned that the ambiguity to trans-shipment charges is a threat not only to India but also to ASEAN countries like Thailand, Vietnam, Malaysia, Indonesia and Singapore. The economy of these countries largely depends on the export of intermediate products.
According to the report, if the American definition remains too strict, the supply chain of the entire Asia-Pacific region may be affected, which will slow down the pace of global trade.
Moody’s has said that now companies may have to provide “Certification of Origin” for each of their exported products. This means they must prove that their products have merely passed through a third country and not been “re-packed” or “re-labeled”.
This process will be complex and time-consuming, which may significantly increase the compliance burden, especially for small and medium-sized exporters (MSMEs).
Moody’s has clearly stated that if this policy is implemented on a large scale, it may lead to disruption in global supply chains, decline in economic growth of India and ASEAN, and reduction in profitability of companies.
This move by America basically targets China, but its “side effect” can be felt across Asia, and India will also not be left untouched by it.
