US says India, 40 others enabling Chinese goods to bypass tariffs

The United States has identified India, along with 40 other countries, as enabling Chinese goods to avoid American tariffs through a covert trans-shipment network. In a report titled "The Great Transshipment Scam," counselor to the President for Trade and Manufacturing, Peter Navarro, estimated the annual value of illegally transshipped goods to be between $40-303 billion across these 41 nations.

India's Pune-Gujarat-Chennai belt has been singled out as one of the "Ugly Sister City" pairs, areas that facilitate Chinese products evading tariffs. This comes amid the US's imposition of a 10% tariff on Indian goods due to a Section 301 probe on forced labor. Washington is also drafting legislation to potentially impose tariffs as high as 100% on India, among five countries, for being the top importers of Russian oil and gas.

In 2025, approximately $67 billion in US-bound goods were trans-shipped from China via the top hubs of Mexico, India, and Vietnam, resulting in an estimated $28 billion in lost tariff revenue. The report does not disclose India's specific share or identify the responsible exporters.

Chinese exporters are increasingly utilizing third countries for routing goods, allegedly through minor alterations like assembly, finishing, repackaging, relabelling, or documentation changes. These tactics create the illusion of a different national origin, potentially paving the way for future investigations against India, according to a trade expert.

The US is contemplating tougher enforcement measures, which could entail more inspections, shipment delays, retrospective duties, and penalties. India, Canada, and the EU are categorized in Tier-1 Diversified Scale Leader countries, which account for substantial volumes of China-linked goods while maintaining diverse industrial bases and significant US-bound export platforms.

Tier 2 includes Brazil, Indonesia, and Malaysia, which exhibit significant illegal transshipment volumes along with deeper integration into China-linked supply chains. Tier 3 consists of the largest number of countries, including Cambodia, Laos, and Myanmar, which serve as China-adjacent border corridors.

The report emphasized that tariff arbitrage lies at the core of this trans-shipment arrangement. When a Chinese product subjected to high US tariffs is routed through a country with a lower tariff rate, the difference in tariff rates becomes a loss of revenue for the United States.