When Considering Lowering Supplier Costs, Understand the Risks of Vietnam Transshipment and True Country of Origin
Many companies are shifting sourcing to Vietnam to escape rising tariffs on goods from China. However, not all products labeled “Made in Vietnam” truly originate there, and misunderstanding that distinction can erase expected savings.
Key Considerations
Country of Origin Rules:
U.S. Customs determines origin based on where a product undergoes its last substantial transformation. If the majority of value or materials come from China and Vietnam only performs final assembly, the product is still considered Chinese origin.
Tariff Exposure:
Products reclassified as Chinese origin can face tariffs up to 40%, applied to the entire landed cost, not just the Chinese portion.
Example Impact:
- $100 product cost, $10 freight.
- Vietnam origin (accepted): 10% tariff. Landed cost = $121.
- China origin (reclassified): 40% tariff. Landed cost = $154.
- A $33 per-unit swing driven entirely by origin determination.
Compliance Risk:
Transshipping Chinese goods through Vietnam can trigger retroactive duties, fines, and reputational harm.
Verification Steps:
- Request documentation proving substantial transformation occurs in Vietnam.
- Audit suppliers’ manufacturing processes and bill of materials.
- Include origin assurance clauses in contracts and RFPs.
Strategic Sourcing Takeaway
When evaluating supplier changes to lower costs, consider total landed cost, including tariffs, freight, and compliance risk.
K2 Sourcing helps organizations make these decisions confidently. Our platform automates total cost analysis by integrating tariff data, freight factors, and supplier inputs. This enables procurement teams to model scenarios and identify true savings, not just lower prices.