What Will “Essential Goods” and “Conduit Countries” Mean in a Second Trump Administration?

Last week I wrote about comments from former President Trump suggesting tariffs as high as 60% on Chinese goods in a second Trump Administration. I explained how this may be connected to Robert Lighthizer and China losing Most Favored Nation (MFN) status.

In researching that post, I came across this line from Trump’s official campaign position :

President Trump will revoke China’s Most Favored Nation trade status and adopt a 4-year plan to phase out all Chinese imports of essential goods—everything from electronics to steel to pharmaceuticals. This will include strong protections to ensure China cannot circumvent restrictions by passing goods through conduit countries.

Only two sentences, much to unpack. The first piece we have covered previously, China losing its Most Favored Nation status. Though without Lighthizer’s book for context, it seems Trump's team plans to fully shift China into “Column 2” of the US tariff schedule, without Congressional review and ongoing MFN approval. This would serve to make Chinese goods more expensive across the board, including in the previously protected consumer categories.

From there the plot thickens. A four-year plan to phase out Chinese imports of essential goods: While Lighthizer highlights the risk of relying on China for critical products in his book No Trade is Free, he does not offer a specific policy prescription except to suggest support for production domestically and in allied nations. We are therefore left to speculate. The fact that this plan will take place over four years suggests a ratcheting mechanism. Perhaps this will take the form of annually increasing tariffs, or declining quotas arriving at a total import ban after four years? If 60% is a key figure, perhaps the former President imagines increasing tariffs by 15% per year on these critical categories, ultimately totaling 60%.

Perhaps more important is what would be considered essential. Pharmaceuticals, electronics, and steel are provided by the statement. But these are very broad categories, with individual products within that are more and less critical. Will narrow or broad definitions be used? Is “electronics” shorthand for semiconductors and integrated circuits, or any product that involves moving electrons? Also, will these policies be applied narrowly by HS code as the current Section 301 tariffs have been, or more qualitatively and broadly as many anti-dumping policies are defined. This of course all pairs with China’s increasing willingness to flex its advantages in certain industries over the US - a topic to follow in either a second Trump or Biden Administration.

Going back to the text, “everything from” suggests that this list of essential items could be expanded. What could be added? One may expect cars to find their way onto this list given longstanding politicization and recent actions by the Biden Administration. Perhaps aluminum as well, which was often paired with steel in the Trump administration. Green technology products and their inputs along with rare earth elements also seem strong candidates. Of course there is the possibility that items we do not all consider “essential” will wind up receiving protection. I am curious what sort of lobbying effort we will see, if there will be a period for public comment as there were with the implementations of the Section 301 tariffs. In this I see potential for domestic manufacturer and third-country importer versus China importer competition. I feel there will be more firepower on the first side, leading to many goods being deemed essential.

But the last piece is the most interesting: preventing Chinese companies passing goods through conduit countries. What could this mean? Is the position suggesting a crackdown on illegal transshipping? My view is that while there may be isolated incidents of fraud via transshipping, this is not happening on a large scale. Though we must remember this is a political document; perhaps transshipping will be presented as a sort of symbolic issue that can be easily understood by the public. What is happening is Chinese companies are establishing manufacturing operations in third countries, Vietnam and Mexico being the most prominent. In these cases we understand at least some amount of processing and assembly is occurring in these countries, though we suspect using significant amounts of imported Chinese materials. Currently this sort of procedure can comply with US policy to change country of origin, but perhaps this will not last.

So what could this statement about conduit countries mean? Will there be guidelines and rules of origin for goods specifically containing Chinese content? Will these only apply to essential categories, or become a new standard for all US imports? Perhaps ownership and control of companies will be the key metric. China-centric companies may be targeted by their branding and public communications and prevented from importing into the US. For example, at this point it seems unlikely Huawei will be given significant US market access no matter where in the world their manufacturing is based. It would be easy to imagine a similar arrangement for BYD.

These two sentences raise so many questions. We will need to listen for more comments from former President Trump and his team as the campaign progresses. I know I’ll be watching the upcoming debates closely. These questions also start to poke at the inherent flaws of the country of origin system - a topic for a later date.

I encourage businesses to start considering these potential changes and their impacts on supply chains now. If you need assistance navigating these complex issues, please reach out to me at [email protected] .