The story so far:

The U.S. has once again named India as a supposed transgressor of what it considers fair trade practices. This time, the White House has come out with a report, called ‘The Great Transhipment Scam’ in which it accuses about 40 countries, including India, of helping China evade U.S. tariffs. 

What is the Great Transhipment Scam?

Over the last nearly three decades, the U.S. and China have intertwined their economies to a very large degree, with the U.S. using China as its factory, and China using the U.S. as its market and investor. This is a somewhat simplistic assessment of their engagement, but is also the most relevant for the current context. 

This relationship has meant that the U.S. has run huge trade deficits with China, importing way more than it exports to that country. Vast trade deficits in general do not sit well with U.S. President Donald Trump — that’s been the main reason behind his insistence on levying tariffs on U.S. trade partners during his second term. However, China began facing such actions during Mr. Trump’s first term itself. 

In 2018, the U.S. imposed tariffs ranging from 7.5% to 100% on goods from China under Section 301 of the Trade Act of 1974 for unfair trade and tech practices. As per the White House report, this resulted in a shrinking of the U.S.’ trade deficit with China in 2019 and 2020.

On July 24, 2026, the U.S. added a further 12.5% tariff for forced-labour compliance gaps. 

Now, according to the report, Chinese exporters have since 2018 increasingly routed goods through third countries so as to evade tariffs. 

“Products that previously moved directly from China to the United States were shipped through jurisdictions where limited assembly, finishing, repackaging, relabeling, or documentation changes could create the appearance of a different national origin,” the report alleges.

What is India’s involvement?

Overall, the White House has identified more than 40 countries associated with “elevated illegal transshipment risk”, with India among the top “enablers” of China’s evasion of tariffs. The other countries named as the top enablers are Mexico, Canada, the European Union, Japan, and South Korea.

Basically, the allegation is that these countries are importing Chinese goods, modifying them marginally, and exporting them to the U.S. at tariffs below what they would have faced had they directly been exported from China. This, the report says, has led to significant revenue loss for the U.S. government. 

“The Office of Trade and Economic Analysis (OTEA) estimates that approximately $67 billion in U.S.-bound goods were transshipped from China through the top hubs — Mexico, India, and Vietnam — in 2025, producing an estimated $28 billion in lost tariff revenue,” the report said.

As one example of what it was talking about, the report mentioned the Pune-Gujarat-Chennai production belt, saying that this area “absorbs” of pumps and compressors from China, thereby affecting industrial supply chains in Cincinnati, Dayton, and Columbus in the U.S.

What does this mean for the U.S.?

Broadly, the report’s findings mean that the U.S.’ tariff policy has failed to reduce U.S. imports and increase its domestic production. 

While the U.S.’ imports from China fell from $525.8 billion in 2017 to $327.5 billion in 2025, total U.S. imports from all countries rose sharply from $2.41 trillion to $3.50 trillion.

Basically, the U.S. replaced many Chinese finished goods with imports from other countries rather than with domestic production. 

As Ajay Srivastava, founder of the think tank Global Trade Research Initiative (GTRI) said, “Trump’s tariffs changed the source of imports but failed to reduce America’s overall dependence on imported goods”.

What are the implications for India?

This is yet another way the U.S. is finding fault with India’s trade policies. During his first term, Mr. Trump found fault with India’s tariffs on luxury motorcycles, after which India reduced them. 

Last year, he blamed India for financing Russia’s war with Ukraine by importing Russian oil and hiked tariffs on imports from India to 50% as a penalty. More recently, the U.S. Senate has passed a Bill — with Mr. Trump’s backing — that would see tariffs of up to 100% being levied on India for its Russian oil imports. The Bill still needs to be introduced and passed in the House of Representatives.

Apart from this, the U.S. has also imposed a 10% tariff on imports from India as a penalty for not doing enough to curb the import of goods made using forced labour. Another investigation on excess capacity is ongoing, which could potentially see tariffs being hiked even further.

The latest allegations of helping China evade tariffs don’t yet come with penal actions, but that possibility remains. Mr. Trump could very well decide to impose further tariffs on countries he deems are helping China in this regard. 

How could India’s economy be impacted?

For India, any penal action would be a blow to its growth story. Over the last few years, rather than predominantly importing Chinese finished goods, India has begun importing raw materials and intermediate goods that it can use to manufacture finished products within India, and then export them. 

For example, electronic components made up 3.3% of India’s imports from China in the first quarter of 2015-16. This has grown to nearly 13% as of the first quarter of 2026-27. Several other types of goods used in manufacturing within India, such as electric machinery, chemicals, plastics, have seen their shares rise over the same period.

On the other hand, finished goods such as telecom instruments have seen their share fall, from about 18% to 11%, over the same period of time. Similarly, manufactured fertiliser saw its share fall from about 7.5% in 2015 to less than 1% in 2026. Consumer electronics have seen their share in imports from China halve over the same period. 

The ‘Make in India, For the World’ story still requires substantial inputs from China. If India is forced to curb those, Indian manufacturing will become more expensive, and its products will become more uncompetitive globally. 

Published – August 16, 2026 12:31 pm IST