Image Source: Fox News
Tariff concerns are escalating after a new White House report warned that foreign exporters may be routing products through third countries to avoid U.S. duties. The practice, known as transshipment, could be costing the U.S. Treasury billions of dollars each year while complicating President Donald Trump’s broader trade strategy.
The 25-page report, titled “The Great Transshipment Scam,” was released Thursday by the White House Office of Trade and Manufacturing Policy. The office is led by trade adviser Peter Navarro, who has made tariff enforcement and China’s trade practices central issues for the administration.
Tariff Evasion Scheme Could Cost Up to $26 Billion
According to the report, tariff-avoiding transshipment may cost the U.S. Treasury between $19 billion and $26 billion annually. Government and private-sector estimates cited in the document place the total value of goods moved through intermediary countries to avoid duties between approximately $34.2 billion and $303 billion per year.
Transshipment occurs when goods are sent through another country before entering the United States. In some cases, products may undergo limited assembly, finishing, repackaging, relabeling or documentation changes before being presented as originating in the intermediary nation.
That process can make products eligible for lower duties than they would face if they were accurately identified as coming from China or another country subject to higher tariffs.
China Identified as the Leading Historical Example
The White House report describes China as the most developed historical example of the practice. It claims Chinese exporters increasingly relied on third-country routes after the United States imposed Section 301 tariffs in 2018.
The report says the direct U.S. trade deficit with China declined in 2019 and 2020 after the duties were introduced. However, it argues that some Chinese exporters responded by shifting shipments through global production hubs, logistics platforms, free-trade zones, bonded warehouses and re-export centers.
“For years, the great transshipment scam has let communist China launder its exports,” Navarro said, according to the Associated Press. The statement reflects the administration’s view that the practice undermines American trade policy and weakens the impact of tariffs intended to protect domestic industries.
More Than 40 Countries Face Transshipment Scrutiny
China is not the only country named in the report. Panama, Mexico and Colombia are among more than 40 countries identified as posing a high transshipment risk. Brazil, Argentina, Chile, Peru, Costa Rica and the Dominican Republic are also included.
Navarro said countries such as India could potentially be used to bypass duties as well. The administration is expected to include anti-transshipment provisions in future trade agreements and frameworks, potentially placing additional compliance responsibilities on U.S. importers and foreign manufacturers.
- Goods may be routed through an intermediary country.
- Products can receive limited assembly or repackaging.
- Labels and documentation may be changed to suggest a new origin.
- Importers could face retroactive duties if false information is discovered.
AI Enforcement and Retroactive Duties
U.S. Customs and Border Protection has reportedly begun using artificial intelligence in a prototype program designed to detect suspicious shipping patterns and possible false country-of-origin claims.
Navarro said importers found to have falsified a product’s origin could face tariffs applied retroactively for approximately one year. The policy could create significant financial exposure for businesses that rely on complex international supply chains.
For companies, the developments may mean more extensive documentation, increased customs reviews and greater scrutiny of manufacturing processes. Importers may need to demonstrate where products were actually made and whether any meaningful transformation occurred before the goods reached the United States.
Trade Tensions Rise Ahead of Xi Jinping Visit
The report arrives ahead of a planned September visit to Washington by Chinese President Xi Jinping. That meeting is expected to take place after President Trump’s visit to Beijing in May, as both nations continue to navigate tariff disputes, supply-chain concerns and broader foreign-policy tensions.
The timing gives the report added significance. The administration is signaling that lowering the direct trade deficit will not be enough if Chinese products continue entering the U.S. market through alternative routes.
Supporters of tougher enforcement say closing transshipment loopholes could protect American manufacturers, recover lost revenue and make trade rules more effective. Critics may warn that aggressive enforcement could raise costs for legitimate businesses and increase prices for consumers if supply chains are disrupted.
The White House has not provided additional comment beyond the report’s findings. Meanwhile, businesses and trade partners will be watching closely for new enforcement measures and possible penalties.
FAQs About the Tariff Transshipment Report
What is transshipment?
Transshipment is the practice of routing goods through an intermediary country before they enter the United States. It can become illegal when companies use the route to conceal the product’s true origin or avoid applicable duties.
How much money could the scheme cost the U.S. Treasury?
The White House report estimates that tariff-avoiding transshipment may cost the Treasury between $19 billion and $26 billion in lost revenue each year.
Which country is most closely associated with the alleged practice?
The report identifies China as the most developed historical example, while also naming more than 40 other countries as potential high-risk transshipment locations.
How is the United States responding?
Customs and Border Protection is testing artificial intelligence to detect suspicious trade patterns. Importers accused of falsifying product origins may also face retroactive duties for approximately one year.
