Why in news?

The Trump administration released a report titled "The Great Transhipment Scam: Global Evasion and Economic Costs," naming India among 40+ countries allegedly helping China evade US tariffs by routing goods through third countries.

India has been placed in the highest-risk category, raising concerns ahead of the ongoing India-US trade agreement negotiations.

What’s in Today’s Article?

• What Is the Shadow Transhipment Network?
• India Specific Allegations: The Pune-Gujarat-Chennai Corridor
• Similar Allegations Against Other Countries
• Why This Matters: Laying Groundwork for New Curbs

What Is the Shadow Transhipment Network?

• A Shadow Transhipment Network refers to an alleged global system where Chinese exporters send goods through intermediate countries before they reach the US, in order to bypass steep American import tariffs.
• In these transit hubs, the goods undergo minor assembly, relabelling, or repackaging, allowing them to be documented as products of the transit country rather than China, thereby evading US customs duties.
• This practice is believed to have expanded significantly after 2018, when the US administration imposed sweeping tariffs on Chinese imports.
• Facing higher duties, Chinese exporters increasingly rerouted shipments through third countries to preserve access to the American market at lower cost.
• US Report on Tiers Based Transhipment Risk
  • The White House report, prepared by the Office of Trade and Manufacturing Policy (OTMP), classifies countries into three tiers based on transhipment risk:
    • Tier 1 – India, Mexico, Canada, and the European Union, where illegal transhipment risk is "embedded" within large volumes of legitimate trade.
    • Tier 2 – Vietnam, Malaysia, and Thailand, described as "closely integrated" with China.
    • Tier 3 – Cambodia, Panama, and the UAE, flagged for "weak customs enforcement."
  • The Department of Commerce's Office of Trade and Economic Analysis (OTEA) estimated that around $67 billion in US-bound goods were transhipped from China via Mexico, India, and Vietnam in 2025, causing an estimated $28 billion in lost tariff revenue.

India Specific Allegations: The Pune-Gujarat-Chennai Corridor

• The report singles out India's Pune-Gujarat-Chennai industrial corridor, calling it one of the "ugly sister" cities of global trade, allegedly used for routing pumps and compressors (HS codes 8413-8414) that pressure US industries in Cincinnati, Dayton, and Columbus.
• However, the Global Trade Research Initiative (GTRI), a New Delhi-based think tank, countered this claim with trade data:
  • India exported liquid pumps worth $1.61 billion globally in FY2026, including $414.5 million to the US, while importing only $326.4 million from China.
  • India exported air pumps and gas compressors worth $1.48 billion globally, including $335.4 million to the US, against $1.63 billion imported from China.
• GTRI argued that India's substantial global exports in these categories weaken the presumption that its US-bound shipments are merely rerouted Chinese goods.

Similar Allegations Against Other Countries

• The report extends similar claims to other Asian manufacturing hubs:
  • Vietnam's Ho Chi Minh City corridor is linked to electrical switching equipment, affecting US industries in Chicago, Milwaukee, and Rockford.
  • Malaysia's Penang-Kulim cluster is tied to plastic articles, impacting plastics production in Akron and Canton.
  • Indonesia's Bekasi-Batam corridor is linked to plastic packaging goods.
  • Thailand's Ayutthaya-Samut Prakan corridor is associated with thermostats.

Why This Matters: Laying Groundwork for New Curbs?

• Trade experts believe the report may pave the way for fresh tariff action through Congress, especially after the US Supreme Court struck down the earlier reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA) in February 2025 for exceeding presidential authority.
• India's tier-1 categorisation signals that the US will likely seek a clause in the upcoming trade deal committing India to act against transhipment practices, and that transhipment-prone Indian exports may already face greater scrutiny.
• Other experts criticised the report for failing to distinguish between genuine transhipment and exports based on legitimate domestic value addition, urging India to question the report's basis and conclusions.
• Experts also linked this report to a broader pattern of pressure, alongside the US Senate's law permitting up to 100% tariffs on major buyers of Russian oil, suggesting the Trump administration is building leverage for future trade actions, possibly including new Section 301 tariffs.
• The report's timing is significant, coming as India and the US negotiate a bilateral trade agreement.
• Being placed in tier 1 could mean India faces pressure to demonstrate reduced dependency on Chinese inputs and to commit to stronger anti-transhipment measures as part of any final deal.

Conclusion

The US transhipment report reflects Washington's broader strategy of shifting tariff pressure from China alone to its trading partners, including India.

While India has strong counter-data on genuine manufacturing capacity, the episode underscores the delicate balance India must strike between deepening trade ties with the US and safeguarding its manufacturing credibility on the global stage.