Significant Drop in Payments to China
A JPMorgan Chase Institute report indicates that payments by US-based midsize businesses to Chinese firms declined sharply by approximately 20% from 2024 to 2025. This occurred even as total international payments from these firms held steady. The reduction aligns with escalating tariffs on Chinese imports imposed under the Trump administration, which positioned China as the most affected major US trade partner.
Tariff rates on China reached an effective 37.4% by October 2025 according to the Penn Wharton Budget Model, amid policy uncertainty with announcements fluctuating, including brief peaks at 125% before reductions.
Shift Toward Other Asian Destinations
Among midsize firms with established outflows to China exceeding $5,000 in both 2023 and 2024, payments redirected to other Asian regions, notably Southeast Asia, Japan, and India. The report suggests import substitution as one explanation, though multiple factors could contribute.
Such shifts prompt questions about whether Chinese products undergo processing in intermediary countries to qualify under lower tariff regimes, distinguishing legitimate transformation from tariff circumvention.
At this point, it is somewhat uncertain whether Chinese products are shipped to countries in the region, modified or processed (this is key) and then sent to the U.S. on a large scale. That said, there are indications that it is likely happening. As long as the products are modified in the second country, it doesn't represent transshipment, a term used for trade practices that aim to circumvent tariffs and other trade rules.
What reflects transshipment of Chinese goods is rising imports from Vietnam and especially Taiwan. You can make an argument that Vietnamese goods are competitors with Chinese goods, and they won out due to the tariffs on China. But there is considerable Chinese investment in Vietnam in the area of consumer goods we buy from Vietnam. If you are a Taiwanese producer in China and you are facing high barriers to goods produced in China, it's very simple to reroute these as Taiwanese.
Tripling of Tariff Payments
The report also documents a tripling of monthly tariff payments by midsize US businesses since early 2025, surging from nearly $100 billion per month in prior years to roughly $300 billion by year-end. This sharp increase began in April 2025, coinciding with initial tariff rate hikes, and continued rising throughout the year.
