Washington accuses China of building a global tariff-evasion network via 'transshipment'

The Trump administration has accused Chinese exporters of building a sprawling system to circumvent US tariffs by routing goods through third countries turning what has long been a familiar feature of global trade — "transshipment" — into a new front in Washington’s economic confrontation with Beijing.

In a sharply worded 25-page report released Thursday, the White House described what it called “The Great Transshipment Scam,” alleging that Chinese companies have used more than 40 countries as way stations to disguise the origin of goods bound for the US and reduce or avoid tariffs.

'Lost' tariff revenue

The administration estimates that as much as $303 billion worth of goods a year could be moving through such channels, although its central estimate is considerably lower.

It says the practice costs the US roughly $19 billion to $26 billion annually in lost tariff revenue.

"These (40) countries are robbing the United States of tens of billions of dollars a year and countless manufacturing jobs," state Peter Navarro, trade adviser to the Trump administration wrote in the New York Times.

What is transshipment?

Transshipment itself is not illegal. A product can legitimately pass through several countries before reaching its final destination.

The problem arises when exporters deliberately route goods through another country — and sometimes alter paperwork, labeling or the manufacturing process — to falsely claim a different country of origin.

US tariffs generally depend on where a product is considered to have originated.

The administration says Chinese exporters have exploited the loophole in that system since the first Trump trade war began in 2018, when Washington imposed broad tariffs on Chinese goods.

Instead of abandoning the American market, some companies allegedly shifted portions of their supply chains to countries with lower US tariff rates.

In practical terms, a shipment that would face a high tariff if declared as Chinese could potentially enter the United States after passing through a third country under a different country-of-origin declaration.

Washington is widening the target

One of the striking aspects of the report is that its criticism extends well beyond China.

The White House identified more than 40 economies as having elevated risks associated with Chinese transshipment, including:

• Canada,

• Mexico,

• European Union

• Japan

• South Korea

• India

• Taiwan

• Vietnam

• Malaysia.

That does not mean Washington is accusing every company or government in those economies of knowingly participating in illegal activity.

Rather, the administration argues that some countries have become important links in supply chains that allow Chinese-origin products to reach the United States with their origin obscured.

That distinction could become increasingly important for US trading partners, because Washington is signaling that future trade agreements and tariff arrangements may come with tougher rules governing the origin of goods.

Why this matters now

The report comes as the Trump administration is attempting to make tariffs a more permanent instrument of US economic policy.

The administration has repeatedly argued that tariffs can protect American factories and encourage production to return to the United States.

But transshipment creates a basic problem: a tariff is less effective if companies can simply change the label or route of a product.

The White House therefore appears to be shifting some of its attention from China itself to the international network through which Chinese manufactured goods move.

Peter Navarro, the administration's trade adviser, characterised the report as a warning to countries that might facilitate tariff evasion.

The administration is also preparing to use artificial intelligence to analyse trade data, shipment routes and other information to identify suspicious patterns.

China’s manufacturing advantage complicates the picture

The dispute reflects a deeper problem that tariffs alone cannot easily solve.

China remains deeply embedded in global manufacturing supply chains. Even when American imports directly from China fall, Chinese-made components and products can enter the United States indirectly through factories and trading hubs elsewhere.

That is why the growth of manufacturing and exports in countries across Southeast Asia and elsewhere has drawn scrutiny.

Some of that trade represents genuine diversification: companies are building factories outside China to reduce costs, avoid geopolitical risks or serve new markets.

But U.S. officials contend that some of the apparent diversification masks continued Chinese production.

The challenge for Washington is determining where legitimate supply-chain restructuring ends and illegal tariff evasion begins.

A new enforcement tool: AI

The administration says it intends to use artificial intelligence to make that distinction faster.

The proposed system, known as “Detective Border,” is designed to compare customs declarations with broader trade data and identify inconsistencies in a shipment's stated origin, route and components.

The idea reflects a recognition that modern supply chains are too complex for customs officials to inspect shipment by shipment.

A suspicious pattern might emerge not from one container but from thousands of transactions: a sudden increase in exports from a Southeast Asian country, a corresponding increase in imports from China, or a mismatch between a company's claimed production capacity and the volume of goods it sends to the US.

The bigger economic question

The administration's accusation raises a question that goes beyond China:

Can tariffs reshape global manufacturing if companies can reorganize supply chains faster than governments can police them?

For Washington, the answer increasingly appears to be tougher rules of origin, more scrutiny of third-country trade and greater use of data and artificial intelligence.

For American importers, however, the crackdown could mean higher compliance costs and greater uncertainty.

Companies that source components from China while assembling finished products elsewhere may face additional scrutiny over how much processing is required before a product can legitimately claim a new country of origin.

For countries caught between Washington and Beijing, the issue could become politically sensitive.

Being identified as a transshipment risk does not necessarily mean being accused of wrongdoing — but it puts those countries on notice that their trade relationships with China could affect their access to the US market.

The therefore represents more than another salvo in the US-China tariff war. It is an attempt by Washington to police the routes around the tariffs — and to make the entire global supply chain part of the trade battle.