Transshipment Scam or Efficient Supply Chain? How U.S. Firms Turn It Into Profit

On August 13, 2026, the White House Office of Trade and Manufacturing Policy released a 25-page report titled "The Great Transshipment Scam," accusing Chinese exporters of using more than 40 countries as pass-through points to disguise the origin of goods and dodge US tariffs. The report has reignited a long-running debate: is transshipment a case of savvy, legal supply-chain optimization, or systematic customs fraud?

What Transshipment Actually Is

Transshipment itself is not illegal — a product can legitimately pass through several countries before reaching its final destination, a practice nearly as old as global trade itself. Pawan Joshi, chief strategy officer at supply chain platform e2open, compared it to a connecting flight: "If we have a direct flight, we'll take that. But if we don't have a direct flight" — or if companies wish to save money — "we connect through an airport." The problem arises specifically when exporters deliberately route goods through another country and alter paperwork, labeling, or manufacturing processes to falsely claim a different country of origin than where the goods actually originated.

The Economics: Tariff Arbitrage as a Business Model

White House trade adviser Peter Navarro, who authored the report, framed the underlying incentive bluntly: "Transshipment is driven by tariff arbitrage: When a product from one country faces a higher US tariff than it would from another country, the difference becomes a profit opportunity, and even a business model in its own right." The math can be striking — ship $1 billion of Chinese goods directly to a US port and the duty can run to several hundred million dollars; route the identical goods through Vietnam, Malaysia, or Thailand, and most of that bill disappears. Route them through Mexico using US-Mexico-Canada Agreement paperwork the goods haven't legitimately earned, and the bill can vanish entirely.

How the Practice Actually Works on the Ground

According to the report, exporters take advantage of tariff-rate differences through relabeling, repackaging, re-invoicing, minor processing, or false country-of-origin claims. Real-world cases illustrate the mechanics: customs enforcement has caught schemes where a Vietnam-based wood manufacturer imported Chinese timber, slapped "Made in Vietnam" labels on it, and re-exported it to the US to dodge duties. Chinese steel has similarly moved indirectly through countries like Oman, Thailand, and the UAE, which import Chinese materials and re-export them as ostensibly local products. One Chinese logistics firm, Settle Logistics, has openly marketed exactly this kind of routing on its own website, telling clients it can help them "bypass those trade tariffs in order to expand markets" via a roughly 4,600-mile diversion through Malaysia — a detour that adds $2,000 to $4,000 in shipping costs per container, but one companies apparently judge worth paying to avoid steeper tariffs.

How US Importers Fit Into the Picture

While the White House report focuses primarily on foreign exporters, US-based importers are directly implicated in how the practice generates profit domestically. Trade lawyers say their firms are regularly contacted by Chinese exporters and logistics brokers offering to relabel goods with third-country origin stickers — Hong Kong, Singapore, Taiwan, or Vietnam — specifically to help US importers sidestep antidumping orders and Section 301 tariffs. Importers who knowingly participate gain a real, if illegal, cost advantage over competitors who pay tariffs in full — but they also expose themselves to serious legal risk. Under the US False Claims Act, whistleblowers (including competitors who lose business to illegally transshipped goods) can sue on the government's behalf and collect a share of any penalties recovered, turning customs fraud enforcement into a potentially lucrative legal weapon for companies playing by the rules.

The Numbers Behind the White House's Claim

The report's headline figures come with considerable uncertainty built in. Its central estimate puts total illegally transshipped goods at roughly $75 billion annually, costing the federal government between $19 billion and $26 billion in lost tariff revenue each year — but that figure is itself an average across five independent methodologies (from Goldman Sachs, the White House Council of Economic Advisers, Exiger, the Commerce Department, and Altana) that range from $40 billion to $303 billion, a 7.5-fold spread. The report additionally estimates the practice displaces roughly 450,000 American jobs and reduces US GDP by $113 billion to $150 billion annually, with electrical equipment and plastics singled out as particularly affected sectors.

Timing and Political Context

The report's release wasn't incidental in its timing — it landed just weeks before a planned September visit to Washington by Chinese President Xi Jinping, and some analysts read it partly as a negotiating position ahead of that meeting. It also followed Executive Order 14411, signed earlier in 2026, which strengthened US customs enforcement through new requirements on importer accountability, bonding, ownership disclosure, and penalties. China's response was sharp: a representative for the Chinese Embassy in Washington told the South China Morning Post that Beijing would "firmly oppose any party seeking to strike a deal at China's expense or engaging in baseless economic coercion."

How Washington Plans to Crack Down

The report outlines an AI-enabled system for US Customs and Border Protection, nicknamed "Detective Border," that would integrate shipment data, routing histories, product classifications, ownership relationships, production-capacity indicators, anomaly detection, and computer vision to distinguish legitimate nearshoring from pass-through trade fraud, helping target high-risk shipments for interdiction and duty collection. Goods determined to be illegally transshipped already face an additional 40% duty under earlier 2025 tariff measures, though officials have acknowledged the precise legal definition of what constitutes transshipment remains somewhat unsettled, leaving trade consultants advising clients to maintain at least 40% local content in third-country manufacturing to stay on the safe side.

The Efficiency Argument

Critics of the White House framing note that not all of the shift away from direct China-to-US shipping reflects fraud — some genuinely reflects legitimate nearshoring and supply-chain diversification that companies pursued for reasons beyond tariff avoidance, including reducing geopolitical risk and building supply-chain resilience after years of trade tensions and pandemic-era disruptions. Many economists also caution that the practice's overall scale relative to total US trade may be more modest than the report's higher-end estimates suggest, since the US imports only modest volumes of certain goods, like steel, from popular transshipment hub countries.

What's Next

If enforcement succeeds in recovering the estimated $19 billion to $26 billion in lost tariff revenue, consumer prices in affected product categories could rise as the underlying tariff arbitrage that's currently suppressing costs disappears. With the AI-driven enforcement system still being built out and the Trump-Xi meeting looming in September, both the scale of the crackdown and its diplomatic fallout remain very much unresolved. For the full White House report, see the official release.

Whether framed as an efficient supply-chain workaround or outright fraud, transshipment sits at the uncomfortable intersection of legitimate trade routing and deliberate tariff evasion — and untangling the two, both legally and economically, is likely to remain one of the thornier fronts in US-China trade policy for months to come.