China's 40-Country Tariff Detour
The U.S. Treasury is missing between $19 billion and $26 billion a year because goods from China are taking a detour. They stop in other countries first.
The U.S. Treasury is missing between $19 billion and $26 billion a year because goods from China are taking a detour. They stop in other countries first. Then they reach American ports with new paperwork and a different story about where they came from.
Peter Navarro, the White House trade adviser, put it plainly on a call with reporters. “China is laundering its exports through more than 40 countries.” He said the practice has gone on for years. The White House gave the scheme a name in its report: The Great Transshipment Scam.
The report says Chinese exporters send goods to places like Mexico, Malaysia, Vietnam, and India. There, the items get repackaged, relabeled, or put through limited assembly. The country of origin on the invoice changes. The tariff rate drops. The U.S. collects less.
This is not the first time trade rules have created a loophole. In 2018, when the Trump administration first imposed Section 301 tariffs on China, direct shipments from China to the U.S. fell. But trade did not vanish. It moved. Exporters learned to route around the barriers. The same pattern shows up now, only wider.
The White House report lists more than 40 nations in what it calls a Shadow Transshipment Network. The list includes major U.S. trading partners. Canada, the European Union, Japan, South Korea, and Taiwan appear alongside Mexico and India. Some of these countries deny any role in helping China evade tariffs. Others say the numbers overstate the problem.
Critics argue the revenue loss figures may be too high. The report itself gives a wide range for the value of transshipped goods: $40 billion to $303 billion, depending on the method used. Goldman Sachs estimated $40 billion. The Commerce Department put it at $109 billion. A private firm, Altana, went as high as $303 billion. The $19 billion to $26 billion loss in federal revenue comes from a central scenario based on $75 billion in exposure.
What is clear is the incentive. If a tariff is high, the reward for dodging it grows. If a tariff is zero, there is no need to commit fraud. That line came from a White House official during the rollout. It points to the core tension. The policy meant to protect U.S. revenue may be encouraging the behavior that drains it.
The report also ties the revenue loss to jobs and growth. It estimates about 450,000 U.S. jobs could be displaced. Gross domestic product could fall by $113 billion to $150 billion a year. These are model outputs, not counts. They depend on assumptions about how much transshipment is happening and how much of it is illegal.
Enforcement is tightening. U.S. Customs is already using artificial intelligence to flag suspicious shipments. The White House says it will penalize countries that enable the practice. Navarro warned that preferential access to the American market is not a license to launder somebody else’s exports. The message is aimed at third countries, not China alone.
History offers a precedent. When the U.S. placed quotas on Japanese textiles in the 1970s, shipments shifted through other Asian nations. When steel tariffs rose in the early 2000s, some producers rerouted through neighbors with lower duties. The pattern repeats when barriers rise faster than oversight. The break in the pattern now is the scale. More than 40 countries. A global web of relabeling and reinvoicing. And a public report naming the network in detail.
The unresolved question is how much of this is minor processing versus real transformation. Trade rules allow goods to change origin if enough work is done in the intermediate country. The line between legal reprocessing and illegal transshipment is thin. The White House report says exporters use false country-of-origin claims. It does not say how many cases have been proven in court.
What comes next depends on enforcement and diplomacy. If the U.S. presses hard on third countries, some may tighten their own export controls. Others may push back, arguing they are being punished for China’s behavior. If tariffs stay high and scrutiny grows, the incentive to find new routes stays high too. The pattern suggests more routing, not less, unless the cost of getting caught rises faster than the savings from dodging the duty.
The money at stake is large. $19 billion to $26 billion a year is not a rounding error in the federal budget. It is enough to fund entire agencies. It is enough to change the math on whether a tariff policy pays for itself. The report makes that clear. The response will show whether the U.S. can close the detour without closing off trade.