US Flags India and Other Countries for Risks Related to Chinese Goods Transshipment

The United States has identified India as one of over 40 countries that may serve as conduits for Chinese goods attempting to evade American tariffs. This classification complicates ongoing trade negotiations between Washington and New Delhi. A report from the White House Office of Trade and Manufacturing Policy accused exporters in various nations of facilitating the entry of Chinese products into the U.S. market through third countries by rerouting shipments, relabeling products, or misrepresenting their country of origin.

India placed in top-risk category alongside major economies

The report categorizes these countries into three tiers based on their economic ties with China and the associated risk of transshipment. India falls into Tier 1, labeled as “Diversified Scale Leaders,” alongside Canada, the European Union, Israel, Japan, Mexico, South Korea, and Taiwan. These nations are characterized as large, diversified industrial economies where the risk of transshipment is intertwined with legitimate trade flows.

In contrast, Tier 2 includes countries with significant economic integration with China, such as Brazil, Indonesia, Malaysia, Thailand, Turkey, and Vietnam. Tier 3 consists of smaller nations identified as “Small, Opportunistic Targets,” including Bangladesh, Cambodia, the Philippines, Singapore, Sri Lanka, and the UAE. The classification does not imply that these countries or their governments are intentionally facilitating tariff evasion; rather, it highlights jurisdictions where U.S. officials perceive varying levels of transshipment risk.

Peter Navarro warns India, Vietnam over tariff evasion

Peter Navarro, a senior U.S. trade adviser, specifically mentioned India during a briefing on the report. He cautioned that nations facing higher U.S. tariffs might be incentivized to facilitate the routing 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 emphasized that countries seeking lower tariffs should not resort to transshipment as a means to circumvent U.S. trade measures. Navarro remarked, “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 warned that preferential access to the American market does not grant permission to launder exports from other nations.

What is Chinese transshipment and why is the US targeting it?

Transshipment involves routing goods through a third country before they reach their final destination. While legitimate trade often includes such practices, the U.S. is concerned about shipments being rerouted or minimally processed to obscure their Chinese origin and avoid tariffs on Chinese products. The report cited instances such as Chinese electric motors being installed in recliners in Vietnam and the operation of “screwdriver factories,” where imported components undergo limited assembly before being exported as products from another country.

U.S. officials argue that these processes may not meet the “substantial transformation” requirement needed for a product to legitimately claim a new country of origin.

US plans AI monitoring and tougher penalties

To intensify its crackdown on suspected transshipment, Washington plans several measures. These include an executive order aimed at enhancing enforcement powers at U.S. Customs and Border Protection (CBP) and a new AI-based monitoring system referred to as a “detective border.” This system is designed to identify shipments with a higher risk of transshipment before they arrive at U.S. ports.

Additionally, the U.S. is incorporating anti-transshipment provisions into new trade agreements, which would impose penalties on countries that allow disguised Chinese goods to enter the U.S. market through their territories. Notably for India, officials indicated that such provisions could be included in future trade agreements, including a potential U.S.-India deal. If a shipment is found to have been transshipped, CBP could seek tariffs retrospectively on a company’s shipments for up to one year. The report emerges amid sensitive trade negotiations between India and the U.S. regarding a reciprocal tariff agreement.

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