Will Trump’s Tariffs Drive Down Forced Labor?
Donald Trump the “tariff sheriff” could give the fight against forced labor-tainted goods an unexpected boost, one supply chain expert says.
This could be one silver lining amid the gathering storm of gloom-and-doom proclamations about the 45th—and soon-to-be 47th—president’s desire to impose even steeper tariffs on foreign goods than he did in his previous term, potentially launching the United States into globally destabilizing trade wars with China, Europe and Mexico that would drive up costs for American households and businesses.
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“I think that tariffs, if they’re put into law, will force the supply chains to be more transparent,” said Jag Lamba, founder and CEO of Certa, a California-based risk and compliance platform that works with companies such as Google and Oracle.
While it was Trump’s administration that first banned imports of cotton and tomato products from China’s Xinjiang Uyghur Autonomous Region in 2021, preceding what would later be enacted into law as the more expansive Uyghur Forced Labor Prevention Act, or UFLPA, the man himself hasn’t mentioned forced labor in any of his speeches on the election circuit. But aspiring tariff dodgers would be poking at the same transshipment or reexport loopholes that Customs and Border Protection, as the operational arm of the cross-agency Forced Labor Enforcement Task Force, has managed to circumvent with some degree of success, for instance, by detaining more shipments from Malaysia and Vietnam than from China.
“Obviously, tariffs have a similar issue, right?” Lamba said. “If you can just reroute the shipments from another country, then the tariffs don’t work.”
That’s not to say that transshipment isn’t a problem, even within the same trading bloc. It was only in September that a bipartisan group of U.S. legislators urged Canada and Mexico to adopt stronger measures that would enable more robust implementation of the United States-Mexico-Canada trade agreement provision against forced labor. They said that the two countries might provide avenues to bypass the U.S. prohibition on Xinjiang-linked imports, citing as an example a shipment of solar panels that were denied entry into the United States, only to be hauled off to Canada for an attempted re-entry stateside. A recent investigation by risk analytics firm Kharon found that 18 Chinese businesses with exposure to Uyghur forced labor were dispatching products to Canada as recently as August, despite a Canadian law that has required businesses to identify and eliminate human rights violations in their operations since January.
Flagging modern slavery is a “cat-and-mouse game,” said Lamba. It’s why companies need to have n-tier transparency in their supply chain from the raw materials stage through to the consumer. “Without that, it’s easy for companies or their suppliers, to hide where the goods are actually coming from,” the former McKinsey & Company consultant added. Enforcement of laws is also important. To date, Canada has only detained one shipment on suspicion of forced labor, although the importer challenged the block and the goods were eventually allowed in. Mexico’s forced labor regulation only went into effect in May.
“What American companies are starting to do, because they’re driven by enforcement actions, is that they’re starting to map and seek to map [not only Tier 1] but also Tier 2, Tier 3 and Tier 4 suppliers and seek chain-of-custody documentation,” Lamba said. The fact is that the UFLPA has genuine teeth behind it. Even companies that exploit loopholes will ultimately realize that the cost of hiding products, versus the penalties they’ll be on the hook for if they get caught, is economically unfeasible, he added.
Other countries are looking to beef up their role in fighting forced labor. The European Union is on the knife edge of outlawing the sale and availability of goods made with forced labor from the world’s largest single market. Ministers in the United Kingdom urged the government this week to introduce a British version of the UFLPA that could complement mandatory human rights due diligence and “uphold human rights in every sphere that we can.” And just before Halloween, the Canadian government announced it was accepting submissions as part of a 30-day consultation on an import prohibition on forced labor goods that would better align with international mores and the country’s commitments under what it refers to as the Canada-United States-Mexico Agreement.
“The United States is far and away our most important trading partner, and we need to at least adhere to the standards that the American authorities have,” John McKay, a member of the Canadian parliament, said at a Kharon webinar on Canada’s Supply Chains Act last earlier this month. “I think we just need to be more aggressive at the border because when negotiations come up, you can pretty well guarantee that our American interlocutors will raise this as a point of contention during the re-negotiation of CUSMA.”
The good news is that technologies now exist to help trace not only supply chains, but also elucidate supplier ownership structures that indicate which business or legal entity benefits the most from a transaction, Lamba said. Certa works with intelligence providers like Altana and Sayari to “ingest” their risk data, combining it with a business’s own information to help identify potential hotspots, drive decision-making and simplify reporting.
As for Trump’s tariffs? “It’s going to be hard to create a good law, but l think tariffs will likely have a positive impact in reducing forced labor,” he added.
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