US flags $26 bn tariff hole as China reroutes exports

The Trump administration has reported an estimated $19 billion to $26 billion annual loss in tax revenue due to countries rerouting their exports through third countries to avoid U.S. tariffs, according to a new report released on Thursday. China is the primary beneficiary of this "transshipping" practice, which involves sending goods to countries like Mexico or Malaysia for minimal assembly before reshipping them to the U.S. or other nations.

This strategy has allowed China to maintain its manufacturing growth, potentially challenging U.S. factories and employment.

White House trade adviser Peter Navarro stated that China is utilizing over 40 countries to launder its exports. The report highlights that while U.S. imports from China may appear to have decreased, the transshipment practice has enabled China to continue expanding its manufacturing sector. The Trump administration has imposed high tariffs on various goods to protect U.S. manufacturers, but these measures have also resulted in inflationary pressures domestically.

The report includes a range of estimates for the scale of transshipments, with a central figure of $75 billion worth of goods being transshipped annually. This estimate suggests that $34.2 billion to $303 billion of goods are transshipped each year, leading to the estimated tax revenue losses. To combat this issue, U.S. Customs and Border Protection has developed a prototype program using artificial intelligence to identify and potentially retroactively tariff imports found to have falsified their origins.

The transshipment practice has also been a point of contention ahead of Chinese President Xi Jinping's planned visit to the U.S. in September, following President Donald Trump's visit to Beijing in May. While China claims its relationship with the U.S. is based on strategic stability, its policies supporting exported manufactured goods have negatively impacted American industries such as auto, metals, and electronics.