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

Under Trump 2.0's governance cycle, the global political and economic landscape presents new characteristics. However, the US market still holds strategic pivot value for the global layout of Chinese enterprises. Facing the adjustment of economic and trade policies during Trump's new term, overseas - going enterprises urgently need to deeply build their ability to analyze 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 phase of the "Overseas Practice Camp" of the Chinese 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 overseas and specific practical cases, it decoded how overseas - going enterprises can properly handle overseas equity investment and supply - chain reconstruction business and effectively avoid legal compliance risks in the new world pattern.

Overseas Practice Camp by Fangda Law Firm

1. The New World Pattern in the Era of Tariffs 2.0 

"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:

1) Unilateral trade policy: For example, the reciprocal tariff policy, imposing high tariffs;

2) Weakening multilateral rules: Encouraging the return of American manufacturing;

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

4) Adjusting and changing the relationship with economic allies: Renegotiating relevant agreements;

5) Curbing 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 should be noted that the operating mechanism of tariff policies has the characteristic of superposition, rather than a single either - or model.

1) IEEPA Tariffs: Raising the tariffs on goods imported from China to 20%;

2) Section 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 original 120% tariff rate of the "small - package tax - exemption" policy was reduced 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: Suspended the 24% additional tariff on Chinese goods, retained the 10% basic tariff, and cancelled the 91% tariff under Executive Orders No. 14259 and No. 14266
• The Chinese side: Synchronously suspended the 24% additional tariff on US goods, cancelled the counter - measures in Announcements No. 5 and No. 6 of the Tariff Commission, and suspended non - tariff measures such as technology export control since April 2nd
• In essence: Locked the tariff level at 10% and set a 90 - day observation period to reserve flexible space for subsequent negotiations.

4) It should be noted that Executive Order 1417 includes the following exemption situations:

• Personal communication activities that do not involve 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 resources management information like salary payments);
• Transactions required or authorized by US federal laws or international agreements.

2. Supply - Chain Risks and Responses of Chinese Enterprises

Under the current global trade pattern, supply - chain risk management has become a key link in the international layout of enterprises. Among them, the rules of origin are the greatest risk faced by the supply chain.

Since enterprises usually need to purchase products of non - domestic origin from third countries, and the recognition criteria 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 believing that "the country of origin is the exporting country": Thinking that as long as products are not directly exported from China, the label of "Made in China" can be avoided. However, the products subject to the additional tariffs imposed by the US on China are those "originating from China", not just those "exported from China".

2) Mistakenly believing that "assembly means substantial transformation": Thinking that as long as the final assembly process is moved overseas, the determination 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 process may not change the conclusion of the origin, 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 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:

1) Supply - chain traceability management: In the construction of the enterprise's supply - chain compliance system, a management system that can cover the entire supply - chain process should be established to comprehensively, clearly, and transparently reflect the product supply chain;

2) Compliance management to eliminate elements of forced labor and environmental non - compliance;

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

Risks of US Economic Sanctions and Supervision

In addition, if Chinese enterprises participate in US business activities or use US dollars for settlement, they must also strictly comply with US economic sanctions 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 freezes under "primary sanctions", but also affect their global business layout due to the triggering of "secondary sanctions". Specifically, enterprises can build a defense system from these two levels:

1) Preventing the risk of "primary sanctions":

• Strictly screening trading partners to avoid doing business with entities on the SDN (Specially Designated Nationals) list or affiliated enterprises with more than 50% of their shares held by such entities;
• 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.

2) Preventing the risk of "secondary sanctions":

• 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.

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

Through research, Fangda Law Firm found that among the enterprises that encountered overseas law enforcement from 2022 to 2023, nearly 60% were subject to law enforcement due to the provisions of the US long - arm jurisdiction. At the same time, the number of cases where Chinese enterprises were 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.

Chinese enterprises currently generally face the following 6 legal dilemmas:

1) Being unfamiliar with legal rules: Lacking a systematic understanding of the US legal system and procedural rules.

2) Having a sense of fear: The sense of fear caused by unfamiliarity with the judicial environment affects decision - making.

3) Influence of the external environment: Additional pressure brought by Sino - US trade frictions and changes in US policies.

4) Issues in lawyer management: Insufficient understanding of the US lawyer market and legal service models.

5) Language communication barriers: Insufficient English communication ability affects the efficiency of case handling.

6) High response costs: The long investigation cycle and high costs bring an operational burden.

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;
• Making crisis - handling plans;
• 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 least hinder the local crisis - handling process, and at most affect the effectiveness of crisis handling and cause serious consequences.

3) Responding professionally and using legal procedures to manage and resolve crises

3. 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 proposed the following three mainstream solutions based on different strategic dimensions for enterprises to choose according to their own characteristics:

1) Reconstruction Solution 1: Going to a Third Country. By adjusting the supply chain and production - line deployment and transferring production to a third country, changing the origin attribute of products to avoid the high additional tariffs imposed by the US.

2) Reconstruction Solution 2: Separating Overseas Business to Form a "Dual - Cycle" of China and Overseas. Splitting overseas business and Chinese business for independent operation and building overseas structures respectively to form a dual - track closed - loop management mechanism.

3) Reconstruction Solution 3: Going to the US and Actively Complying. Directly deploying the production end in the US, strengthening local compliance operations, and completely avoiding the impact of tariff - policy barriers.

Speaker Introduction: Bu Rui is a partner in the Beijing and Hong Kong offices of Fangda Law Firm. He graduated from East China University of Political Science and Law and the University of Georgia in the United States. He has successively 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, and foreign direct investment.

Fangda Law Firm

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 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 fast - growing technology companies. It has rich practical experience and professional resources in going overseas and is good at providing more targeted, high - quality, and cost - effective overseas legal services.

(This article was compiled by Qiu Wenxin based on the on - site content)