How Tariffs on Chinese Goods Led to Transshipment Scams

The 25-page document, titled “The Great Transshipment Scam,” was produced by the White House Office of Trade and Manufacturing Policy and identifies more than 40 countries posing a high transshipment risk, with China cited as offering the most developed historical example of the practice.

The Mechanics of Tariff-Avoiding Transshipment

Transshipment involves routing goods through an intermediary country before they enter the United States under a different country of origin, which can potentially qualify shipments for lower tariffs. When Section 301 tariffs were placed on China in 2018, the bilateral U.S. trade deficit with the country subsequently declined over the course of 2019 and 2020. However, the report states that Chinese exporters increasingly routed goods through third countries, moving products through jurisdictions where limited assembly, finishing, repackaging, relabeling, or documentation changes created the appearance of a different national origin. “After their imposition, Chinese exporters increasingly routed goods through third countries,” the report states, noting that practices contributed to the development of a global network of production hubs, logistics platforms, free-trade zones, bonded warehouses, processing corridors, and re-export centers.

Global Network and High-Risk Jurisdictions

Aside from China, the White House report highlights over 40 countries categorized as posing high transshipment risks. According to the Fox News coverage, these jurisdictions include Panama, Mexico, Colombia, Brazil, Argentina, Chile, Peru, Costa Rica, and the Dominican Republic.

Trade adviser Peter Navarro stated that countries such as India could also utilize transshipment to bypass tariffs. “For years, the great transshipment scam has let communist China launder its exports,” Navarro said, according to The Associated Press as reported by Fox News.

The Trump administration has taken steps to strengthen transshipment enforcement, according to the report. U.S. Customs and Border Protection has begun utilizing artificial intelligence in a prototype program designed to detect transshipment activity. Furthermore, importers found to have falsified a product’s origin face penalties including tariffs applied retroactively for roughly a year. Navarro also indicated that new trade frameworks pursued by the administration will include explicit provisions to penalize trading partners engaging in these practices.