On August 13, a report from the White House Office of Trade and Manufacturing Policy accused more than 40 nations of facilitating methods for Chinese exporters to evade US tariffs. The report labelled these practices as the “Great Transhipment Scam” and detailed how goods are rerouted through third countries to obscure their origin.

India has been classified in Tier 1, alongside other significant economies such as Canada, the European Union, Israel, Japan, Mexico, South Korea, and Taiwan. These nations are identified as major industrial bases where transhipment risks are inherently part of legitimate trade activities.

In Tier 2, countries like Brazil, Indonesia, Malaysia, Thailand, Turkey, and Vietnam are recognised for their significant economic ties with China. The smallest nations, classified in Tier 3, include Bangladesh, Cambodia, the Philippines, Singapore, Sri Lanka, and the UAE, which are viewed as “Small, Opportunistic Targets” in this context.

Warnings from US Trade Officials

Peter Navarro, a senior trade adviser, singled out India during a recent briefing, expressing concerns about the potential for increased transhipment as higher tariffs are imposed. He stated that the message from the US is clear: “the way to pay less is not to cheat.” Instead, he urged nations to stop practices like dumping, respect intellectual property, and reduce barriers to US goods.

Navarro’s remarks highlighted the government’s position that countries benefiting from lower tariffs must not serve as conduits for the misrepresentation of Chinese exports. He stressed that preferential access to the American market does not permit the laundering of other nations’ exports, implying severe consequences for those that continue such practices.

Illustrative examples from the report included the assembly of Chinese electric motors in Vietnam, as well as minimal assembly operations in “screwdriver factories” that fail to significantly alter a product’s origin. This aspect of the report underlines the enforcement challenge that the US faces with transhipment activities.

Implications for Trade Relations with India

The focus on transhipment coincides with ongoing trade negotiations between the US and India concerning a reciprocal tariff agreement. These discussions are further complicated by pressure from the US regarding India’s imports of Russian oil, potentially creating friction in bilateral relations.

The US Trade Representative’s office has confirmed that anti-transhipment provisions will now be included in all forthcoming trade agreements, with potential penalties for nations that permit the entry of disguised Chinese goods via their ports. This introduces a new layer of scrutiny in trade relations.

Recent measures outlined by officials include an executive order enhancing enforcement capabilities at US Customs and Border Protection (CBP), along with the establishment of an AI-driven monitoring system. This “detective border” system will examine shipments for transhipment risks prior to arrival at US ports.

Officials disclosed that should any shipment be found to have undergone transhipment, CBP will obtain the authority to retroactively demand tariffs on those shipments over the preceding year. The report does not solely target China; other nations such as Vietnam, Cambodia, Malaysia, Indonesia, and the Philippines have been identified as crucial hubs for this transhipment issue.

As discussions between India and the US continue on a potential reciprocal tariff agreement, the implications of this report remain uncertain. Officials have declined to elaborate on how these findings may influence an expected meeting between US President Donald Trump and Chinese leader Xi Jinping, stating only that it would inform the US Trade Representative’s strategy at the negotiating table.

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