Explained: U.S. Allegations Against India Over 'Transshipment Scam' to Evade Tariffs

The United States has accused India and around 40 other countries of helping China evade American tariffs through a practice known as transshipment. The accusation comes from a White House report titled 'The Great Transhipment Scam', which claims these countries have been rerouting Chinese goods to the U.S. with minimal changes, allowing them to bypass trade duties.

The U.S.-China economic relationship has been deeply intertwined for nearly three decades, with the U.S. relying on China as a manufacturing hub and China depending on the U.S. for market access and investment. This has led to massive trade deficits for the U.S., a concern repeatedly raised by President Donald Trump. In 2018, the U.S. imposed tariffs ranging from 7.5% to 100% on Chinese goods such as electric vehicles, semiconductors, and medical products under Section 301 of the Trade Act of 1974, citing unfair trade practices. The White House report notes that these tariffs initially reduced the trade deficit in 2019 and 2020.

However, the report argues that Chinese exporters have since found ways to circumvent these tariffs. Instead of shipping directly to the U.S., goods are sent to third countries where they undergo limited assembly, finishing, repackaging, or relabeling to create the appearance of a different national origin. The White House identifies more than 40 countries with 'elevated illegal transshipment risk'. India, along with Mexico, Canada, the European Union, Japan, and South Korea, is listed among the top 'enablers' of this evasion.

According to the report, the Office of Trade and Economic Analysis estimates that approximately $67 billion in U.S.-bound goods were transshipped from China through the top hubs — Mexico, India, and Vietnam — in 2025. This resulted in an estimated $28 billion in lost tariff revenue for the U.S. government. The report also cites a specific example involving the Pune-Gujarat-Chennai production belt in India, which it claims 'absorbs' Chinese pumps and compressors, thereby affecting industrial supply chains in the U.S. cities of Cincinnati, Dayton, and Columbus.

The broader implication for the U.S. is that its tariff policy has not achieved the intended goal of reducing imports and boosting domestic production. While 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. This suggests that the U.S. replaced many Chinese goods with imports from other countries rather than increasing domestic manufacturing.

For India, these allegations add to existing trade tensions with the U.S. During his first term, President Trump had already criticized India's trade practices. The latest report represents a further point of friction. While the report presents data and estimates, it is important to note that these are allegations from the U.S. side, and India has yet to formally respond. The outcome of these accusations could affect future trade negotiations between the two countries.