The White House Office of Trade and Manufacturing Policy released a report on August 13 identifying more than 40 countries as posing risks for facilitating transshipment—the rerouting of Chinese goods through third countries to evade U.S. tariffs. The report, titled ‘The Great Transshipment Scam,’ estimates that such practices cost the U.S. Treasury $19 billion to $26 billion annually in lost revenue.
India and Vietnam were among the nations placed in the highest-risk category, labeled as ‘Tier 1: Diversified Scale Leaders,’ alongside Canada, the European Union, Israel, Japan, Mexico, South Korea, and Taiwan. These economies are described as having embedded transshipment risks within otherwise legitimate trade flows. The report categorizes countries into three tiers based on their economic ties to China and the perceived risk of tariff evasion.
U.S. trade adviser Peter Navarro stated that the practice involves relabeling, repackaging, or falsely declaring country of origin to disguise Chinese goods as originating from another nation. The report alleges that China has systematically evaded tariffs imposed in 2018 by routing goods through countries such as Vietnam, Malaysia, and Mexico, where minor assembly or processing occurs before export to the U.S.
Immediate U.S. Response and Monitoring Plans
The White House announced plans to enhance detection of transshipment using artificial intelligence (AI) and to impose tougher penalties on violators. The report did not allege that any government was deliberately facilitating tariff evasion but identified jurisdictions where U.S. officials see varying levels of risk.
The Section 301 tariffs on Chinese goods, introduced in 2018, initially reduced the U.S. trade deficit with China in 2019 and 2020. However, the report claims that Chinese exporters increasingly rerouted shipments through third countries, undermining the tariffs' intended impact. The practice has contributed to the development of global networks of production hubs, logistics platforms, and free-trade zones designed to obscure the origin of goods.
Global Trade Implications
The report’s findings come amid ongoing trade negotiations between the U.S. and several of the flagged countries, including India. While the U.S. has not accused any nation of directly enabling transshipment, the classification raises concerns about supply chain transparency and compliance with trade regulations. The White House has indicated that future trade agreements will include provisions to penalize transshipment, though no specific measures have been detailed.
The estimated annual value of illegally transshipped goods ranges from $40 billion to $303 billion, depending on methodological definitions, according to the report. The practice has also been linked to job losses in the U.S., with claims of 450,000 jobs affected and a $113 billion to $150 billion reduction in annual GDP.
Reactions and Broader Context
The report frames transshipment as a systemic issue involving more than 40 countries, with China identified as the primary beneficiary. Navarro described the practice as ‘modern-day smuggling’ and emphasized that it extends beyond China to include other nations enabling tariff avoidance. The White House has not provided granular data on specific cases but asserts that the global scale of transshipment poses a significant challenge to U.S. trade enforcement.
The findings underscore tensions in U.S.-China trade relations, particularly as both nations engage in ongoing negotiations. The report’s release precedes a planned visit by Chinese leader Xi Jinping, though no direct link between the two events has been confirmed. The U.S. has previously imposed tariffs on hundreds of billions of dollars’ worth of Chinese goods, citing unfair trade practices and intellectual property theft.
Key Takeaways
- The U.S. has flagged over 40 countries, including India and Vietnam, as high-risk for transshipment activities.
- The practice costs the U.S. $19B–$26B annually in lost tariff revenue.
- China is accused of systematically evading tariffs by rerouting goods through third countries.
- The White House plans to use AI monitoring and stricter penalties to combat the issue.
- The report does not allege government-level complicity but highlights jurisdictions with elevated risk levels.