In the era of Tariffs 2.0, how can enterprises restructure their overseas supply chains?

Under the Trump 2.0 administration cycle, the global political and economic landscape presents new characteristics, but the US market still holds strategic fulcrum value for the globalization layout of Chinese enterprises. Facing the adjustment of economic and trade policies during Trump's new term, overseas enterprises urgently need to deeply build the ability to interpret international rules and form a dynamic response mechanism in the fields of supply chain reshaping and compliance management system optimization.

On May 16th, the second "Overseas Practice Camp" of the China Enterprises International Service Center, in collaboration with Fangda Law Firm, launched a special session on legal compliance. Focusing on the practical operations of enterprises going global and specific practical cases, Lawyer Bu Rui from Fangda Law Firm on-site decoded how overseas enterprises can properly handle supply chain reconstruction business and effectively avoid legal compliance risks in the new world pattern.

The New World Pattern in the Trump 2.0 Era

"America First" has always been the underlying logic of Trump's governance. His policy system mainly operates around five strategic directions. Enterprises can establish a dynamic monitoring mechanism in these aspects in advance and conduct risk early - warning.

Bu Rui summarized the underlying logic of Trump's trade policy into 5 points:

Unilateral trade policy: For example, the reciprocal tariff policy, imposing high tariffs.

Weakening multilateral rules: Encouraging the return of American manufacturing.

Strengthening the role of administrative agencies in the trade field: Using the principle of separation of powers for administrative legislation.

Adjusting and changing the relationship with economic allies: Renegotiating relevant agreements.

Containing China on the grounds of US national security.

The most directly affected area is the application of tariff policies and legal tools, mainly involving the following 4 major categories. It is worth noting that the operating mechanism of tariff policies has the characteristic of superposition, rather than a single either - or model.

1 IEEPA Tariffs

Increasing the tariffs on goods imported from China to 20%.

2 232 Tariffs

Imposing an additional 25% tariff on steel derivatives and 10% on aluminum derivatives.

3 Reciprocal Tariffs

Before the issuance of the Geneva Joint Statement, the reciprocal tariff rate imposed on China had been raised to 125%. The "small - package tax exemption" policy reduced the original 120% tariff rate to 54%; the plan to raise the limit from $100 to $200 was cancelled.

After the issuance of the Geneva Joint Statement: It was announced that the additional tariffs on some goods would be suspended within the next 90 days, and the two countries reached a phased balance in the tariff game.

The US side

Suspending the 24% tariff imposed on Chinese goods, retaining the 10% basic tariff, and canceling the 91% tariff under Executive Orders No. 14259 and No. 14266.

The Chinese side

Simultaneously suspending the 24% tariff imposed on US goods, canceling the counter - measures in Announcements No. 5 and No. 6 of the Tariff Commission, and suspending non - tariff measures such as technology export control since April 2nd.

Essence: Locking the tariff level at 10% and setting a 90 - day observation period to reserve flexible space for subsequent negotiations.

4 Exemption Situations Included in Executive Order 1417

Personal communication activities without the attribute of value exchange. (Such as forms like e - mails, telegrams, and telephone communications)

Cross - border information circulation behaviors carrying expressive content. (Covering cultural products such as publications and film and television works)

Transaction types directly related to travel activities. (Such as travel services like international air ticket bookings)

Ancillary transactions necessary as a regular part of financial services.

Necessary data transmission generated by the internal business operations of multinational enterprise groups. (Such as human resource management information like salary payments)

Transactions required or authorized by US federal laws or international agreements.

Supply Chain Risks and Responses of Chinese Enterprises

In the current global trade pattern, supply chain risk management has become a key link in the internationalization layout of enterprises. Among them, the rules of origin are the biggest risk faced by the supply chain.

Since enterprises usually need to purchase products of non - domestic origin from third countries, and the recognition standards of relevant regulations often exceed expectations, many enterprises fall into cognitive blind spots due to misunderstandings of the rules, resulting in unnecessary tariff burdens or compliance risks. Common cognitive misunderstandings include the following two aspects:

1. Mistakenly thinking that "the origin is the exporting country": Assuming that as long as products are not directly exported from China, the "Made in China" label can be avoided. However, the products subject to the additional tariffs imposed by the US on China are those "originating in China", not just those "exported from China".

2. Mistakenly thinking that "assembly means substantial transformation": Believing that as long as the final assembly link is moved overseas, the recognition of Chinese origin can be cut off. However, in the context of trade disputes, the US Customs pays more attention to the origin of core raw materials, key components, and the substantial value - added process when determining the origin. If the main value still comes from China, simply moving the assembly link may not change the origin conclusion, and may even trigger compliance reviews due to incomplete supply chain restructuring.  

These misunderstandings indicate that if enterprises only rely on superficial adjustments and ignore the technical details of the rules of origin and the discretionary power of the US Customs, they may still face high tariffs or law - enforcement risks. Therefore, enterprises must formulate strategies based on the specific characteristics of their products and customs precedents to avoid passive responses.

Supply Chain Risks Related to ESG

ESG compliance has become the focus of the global regulatory trend. With the deepening of the climate crisis, the intensification of labor rights disputes, and the frequent occurrence of corporate governance issues, governments around the world have strengthened ESG legislation, requiring enterprises to assume stricter compliance obligations in environmental management, social responsibility, and ethical governance in the supply chain. For example, many well - known large enterprises limit overtime work to meet the ESG audit standards of international customers. Now, ESG compliance has changed from a "moral option" to a "survival requirement". Enterprises need to deeply integrate supply chain compliance with ESG management to achieve stable development in the complex international regulatory environment.

Lawyer Bu Rui analyzed and pointed out that enterprises currently need to build three core capabilities to meet the ESG management requirements:

Supply chain traceability management: In the construction of the enterprise's supply chain compliance system, a management system covering the entire supply chain process should be established to comprehensively, clearly, and transparently reflect the product supply chain.

Compliance management to eliminate elements of forced labor and environmental non - compliance.

Arrangements for relevant compliance systems such as recording, training, reporting, punishment, and auditing.

Regulatory Risks of US Economic Sanctions

In addition, if Chinese enterprises participate in US business activities or use US dollars for settlement, they must also strictly abide by US economic sanction regulations and prevent the risk of being on the blacklist. Once in violation, enterprises may not only face risks such as huge fines and asset freezing ("primary sanctions"), but also affect their global business layout due to the triggering of "secondary sanctions". Specifically, enterprises can build a defense system from the following two aspects:  

 Preventing "primary sanctions" risks:

Strictly screening trading partners and avoiding doing business with entities on the SDN (Specially Designated Nationals) list or affiliated enterprises with more than 50% ownership.

Fully avoiding trade and investment activities in regions of "comprehensively sanctioned countries" by the US.

Being vigilant about the associated risks of sanctioned industries, even if the transactions are not directly related to the US.

 Preventing "secondary sanctions" risks:

Prohibiting providing substantial assistance to sanctioned entities or conducting major transactions with them.

Paying high attention to high - sensitivity industries and avoiding business dealings involving industries subject to secondary sanctions.

Overseas Law - Enforcement Risks of "Long - Arm Jurisdiction"

Fangda Law Firm found through research that among the enterprises that encountered overseas law - enforcement from 2022 to 2023, nearly 60% were subject to law - enforcement due to the US long - arm jurisdiction regulations. At the same time, the number of cases where Chinese enterprises are the key targets of US trade secret litigation has also increased significantly. This trend highlights the complexity of the US regulatory environment and the severe challenges faced by Chinese enterprises in compliance.

In this context, how to systematically respond to overseas law - enforcement crises has become the key to the internationalization strategy of enterprises. Based on practical experience and research, Bu Rui summarized the following three major links that constitute the core principles and strategies indispensable for crisis management:

1. Making Pre - plans:

Building risk assessment and pre - plans.

Conducting crisis - handling planning.

Organizing training and simulations.

Regularly reviewing to ensure the timeliness and operability of the pre - plans.

2. Being Vigilant Against Traps and Overcoming the Difficulties of Legal and Cultural Differences:

There are significant differences in legal and political cultures among different countries and regions. Enterprises are prone to fall into thinking misunderstandings when dealing with overseas law - enforcement crises. Such differences may at best hinder local crisis - handling and at worst affect the effectiveness of crisis - handling and cause serious consequences.

3. Professional Response

Using legal procedures to manage and resolve crises

Supply Chain Reconstruction and Compliance Optimization

It is not difficult to find that under the influence of the new US policy, it is imperative to systematically reconstruct the supply chain to achieve risk avoidance and efficiency improvement. For this reason, Fangda put forward the following three mainstream solutions based on different strategic dimensions for enterprises to choose according to their own characteristics:

Reconstruction Plan 1: Going Global to a Third Country.

Adjusting the supply chain and production line deployment, moving production to a third country, changing the origin attribute of products, and avoiding the high additional tariffs imposed by the US.

Reconstruction Plan 2: Separating Overseas Business to Form a "Dual - Cycle" of China and Overseas.

Separating overseas business from Chinese business for independent operation and building overseas structures respectively, thus forming a dual - track closed - loop management mechanism.

Reconstruction Plan 3: Going Global to the US and Actively Complying with Regulations.

Directly deploying the production end in the US, strengthening local compliance operations, and completely avoiding the impact of tariff policy barriers.

 Guest Speaker 

Bu Rui

A partner in the Beijing and Hong Kong offices of Fangda Law Firm, graduated from East China University of Political Science and Law and the University of Georgia in the United States. He has worked in several well - known law firms such as Winston & Strawn LLP in the US, Paul, Weiss, Rifkind, Wharton & Garrison LLP in the US, and DLA Piper in the UK. He is mainly good at mergers and acquisitions, private equity financing, Sino - foreign joint ventures, overseas investment, foreign direct investment and other fields.

Fangda Law Firm was established in 1993. It is an integrated comprehensive law firm providing legal services in Chinese law and the laws of the Hong Kong Special Administrative Region of China. It also has offices in Beijing, Guangzhou, Hong Kong, Nanjing, Shanghai, Shenzhen, and Singapore. Currently, it has about 800 lawyers in total, providing legal services for large multinational companies, global financial institutions, many leading Chinese enterprises, and rapidly growing technology companies. It has rich practical experience and professional resources in going global and is good at providing more targeted, high - quality, and cost - effective legal services for overseas expansion.

This article is from the WeChat public account "Hangzhou Qiantang Enterprise Overseas Service Base", author: Qiantang Going Global. It is published with authorization from Qiantang.