The United States has included India in a list of over 40 countries it deems at risk for facilitating the evasion of U.S. tariffs on Chinese goods, a move that may complicate ongoing trade negotiations between Washington and New Delhi.
The United States government has identified India as one of more than 40 nations considered at risk of serving as a transshipment point for Chinese goods attempting to evade U.S. tariffs. This classification was highlighted in a recent report published by the White House Office of Trade and Manufacturing Policy, which has raised concerns about trade practices that may undermine U.S. tariff policies.
The report accuses exporters in various countries, including India, of engaging in practices such as re-routing shipments, relabeling products, or falsely declaring the country of origin to facilitate the entry of Chinese goods into the U.S. market. The report has termed this phenomenon the “Great Transshipment Scam,” indicating a concerted effort by the U.S. to detect and penalize such shipments.
Classification of Countries
In the report, India was classified in Tier 1 alongside other major economies including Canada, the European Union, Israel, Japan, Mexico, South Korea, and Taiwan. This designation, referred to as “Diversified Scale Leaders,” includes large, diversified industrial economies where the risk of transshipment is present within otherwise legitimate trade flows.
Conversely, Tier 2 countries, labeled “Significant Economic Integration with China,” include Brazil, Indonesia, Malaysia, Thailand, Turkey, and Vietnam. A third tier, Tier 3, encompasses nations such as Bangladesh, Cambodia, the Philippines, Singapore, Sri Lanka, and the United Arab Emirates, characterized as “Small, Opportunistic Targets.” The classification does not imply that the governments of these countries are intentionally assisting exporters in evading tariffs; instead, it highlights jurisdictions where the U.S. perceives varying levels of transshipment risk.
U.S. Trade Adviser Comments
U.S. trade adviser Peter Navarro specifically pointed out India and Vietnam in discussions surrounding the report. He expressed concern that countries facing higher U.S. tariffs might have increased incentives to facilitate the transshipment of Chinese goods through their territories. Navarro stated, “This is about the 40-plus countries that are enabling the transshipping, and as we impose higher tariffs on other countries, India, Vietnam, down the line, they’re going to try this transhipment too.”
He urged these countries to address broader trade barriers rather than resorting to transshipment as a means to circumvent U.S. tariffs. Navarro emphasized that legitimate pathways to lower tariff burdens should be pursued, stating, “The way to pay less is not to cheat; it is to stop dumping, respect intellectual property, drop your barriers to American goods and move towards reciprocity.” He also warned that preferential access to the American market should not be misconstrued as a license to facilitate the laundering of another country’s exports.
Understanding Transshipment
Transshipment is a common practice in global trade, where goods frequently pass through several countries before reaching their final destination. However, U.S. officials are particularly concerned with shipments that are allegedly rerouted or undergo minimal processing in a third country to obscure their Chinese origin and evade tariffs. The report cited specific instances, such as Chinese electric motors being integrated into recliners in Vietnam and the emergence of so-called “screwdriver factories,” where imported components undergo limited assembly before being exported as products originating from another country.
U.S. officials noted that such minimal processing may fail to meet the “substantial transformation” standard required for a product to legitimately claim a new country of origin. This distinction is critical in determining the legitimacy of trade practices under U.S. law.
Future Enforcement Measures
The U.S. government plans to intensify its enforcement efforts against transshipment practices. This includes an executive order aimed at enhancing the authority of U.S. Customs and Border Protection and introducing an AI-driven monitoring system dubbed a “detective border.” This system is designed to flag shipments that may be more likely to involve transshipment before they reach U.S. ports.
Additionally, the administration aims to integrate anti-transshipment provisions into future trade agreements, potentially imposing penalties on countries that allow disguised Chinese goods to enter the U.S. through their territories. Such provisions could have implications for ongoing negotiations, including a potential trade agreement between the U.S. and India.
Under the proposed enforcement framework, if a shipment is later identified as having been transshipped, U.S. customs authorities may seek to retroactively apply tariffs on a company’s shipments from the past year, rather than restricting enforcement to just the specific shipment in question.
Ongoing Trade Negotiations
This report emerges amid ongoing negotiations between India and the U.S. over a reciprocal tariff agreement, as both nations navigate complex issues related to trade and energy ties, particularly in the context of India’s relationship with Russia. While U.S. officials have stated that the report is not solely focused on China, they have highlighted Vietnam, Cambodia, Malaysia, Indonesia, and the Philippines as key transshipment hubs. Countries facing increased U.S. tariffs could have additional incentives to engage in similar practices.
As the U.S. prepares for potential discussions involving President Donald Trump and Chinese President Xi Jinping, officials have refrained from commenting on how the findings of this report might influence those negotiations, indicating that it will inform the U.S. Trade Representative’s approach moving forward.
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