How China Evades Billions in U.S Duties Through 40 Countries

The White House has released a bombshell report that has put a price tag on one of international trade’s most persistent and difficult-to-combat problems: the billions of dollars in U.S. duties that Washington says Chinese exporters and their trading partners are avoiding by exploiting differences in tariff rates, regulatory requirements and customs enforcement across markets. The findings offer a rare estimate of the financial cost of what U.S. officials describe as a broader pattern of trade circumvention, in which goods can be rerouted through other countries or undergo limited processing to take advantage of lower tariffs or different rules of origin. The report puts the issue at the center of the Trump administration’s broader effort to tighten enforcement of its tariff regime and prevent countries from becoming conduits for Chinese goods seeking to enter the U.S. market at lower duty rates.

According to an analysis led by White House trade adviser Peter Navarro, American tariff revenue losses from illegal transshipment schemes range between $19 billion and $26 billion annually. But the report itself reviews five government and private-sector estimates of potential transshipment or related trade-transfer exposure, with estimates ranging from approximately $40 billion to $303 billion annually, depending on the methodology and definition used. 

“The White House Council of Economic Advisers estimates potential illegal transshipment in a range of $34.2 billion to $89.6 billion, and this report uses a rounded midpoint of $60 billion. Exiger develops a central estimate of approximately $75 billion based on product-level and shipment-flow analysis,” says the Great Transshipment Scam report released by the Office of Trade and Manufacturing Policy. “The Department of Commerce identifies a broader $109 billion trade-transfer benchmark and separately estimates approximately $67 billion in 2025 illegal transshipment through leading hubs. Altana’s $303 billion estimate represents a broad upper-bound exposure measure.”

The study names over 40 countries, from Vietnam to Canada to Mexico, as complicit in what amounts to a coordinated circumvention of the Trump administration trade policy.

Yet beneath the headline figures lies a more complex story about how tariff policy itself creates the incentives for evasion, and whether Washington’s proposed solutions can actually work.

How the Scheme Works

Transshipment is deceptively simple in its mechanics, yet remarkably difficult to detect and prosecute at scale. The practice involves three key steps: a Chinese manufacturer produces goods such as semiconductors, textiles, electronics and machinery destined for the United States. Rather than shipping directly, the exporter diverts the cargo to an intermediary nation with lower tariff rates. 

There, minimal additional processing occurs: a shirt receives a few extra stitches; a semiconductor gets repackaged; a component is assembled with materials sourced from the transit nation. This perfunctory work is crucial. Under international trade rules, including the World Trade Organization’s rules of origin

A product’s nationality depends on where the final processing occurs. By performing that final assembly in Cambodia, Vietnam, or Thailand, Chinese exporters can legally claim those countries as the origin. The cargo then enters the U.S. bearing a Cambodian or Vietnamese export label, subject to the much lower tariff rates applied to those nations.

The economics are straightforward. As of June 2026, Chinese goods faced an effective tariff rate of approximately 23 percent, according to analysis from the Penn Wharton Budget Model compared to roughly 3 to 5 percent for most other leading trade partners. 

For exporters, routing Chinese goods through a country with 4 percent tariffs instead of paying 23 percent amounts to an enormous competitive advantage. The incentive structure has never been more pronounced.

The Problem with the Methodology

The $19 billion to $26 billion figure dominates headlines, but it obscures a critical methodological problem: the White House report does not present original evidence of the scale of transshipment. Instead, it relies on a range of external estimates, some dramatically different. The upper end of the White House’s own acknowledged range reaches $40 billion to $303 billion annually, a spread so wide it suggests considerable uncertainty about the phenomenon’s true extent.

“We’re dealing with inherent measurement challenges,” said Dr. Marcus Chen, senior economist at the Brookings Institution’s Center on Regulation and Markets, in an interview.  “Transshipment by its nature is hidden. Companies deliberately obscure origins. The White House report represents the best official estimate, but it remains an estimate.”

The report itself identifies 40+ countries by name as having been used for transshipment schemes, including several major U.S. allies. Vietnam and Malaysia feature prominently, both countries have experienced explosive growth in electronics exports to the United States over the past two years, a pattern trade analysts attribute partly to companies relocating supply chains to evade Chinese tariffs on Beijing. Yet the countries also include traditional trade partners: Canada, Mexico, and European Union member states all appear on the White House’s list.

The report’s recommendations emphasize technological and regulatory solutions. The White House proposed expanding  AI-powered cargo scanning at border checkpoints, stricter rules for determining product origin, and closer coordination with trading partners on enforcement. It also suggested the possibility of retaliatory tariffs against countries facilitating transshipment.

“This is a problem that you created, and now you are complaining that the countries are taking advantage of the problem that you created.” — Deborah Elms, head of trade policy, Hinrich Foundation.

The Tariff Policy Problem at the Root

Perhaps the most incisive critique of the White House report came not from political opponents but from trade economists who agree that transshipment is problematic. They argue that the administration’s high tariff rates created the incentive structure that makes transshipment so profitable in the first place.

Deborah Elms, head of trade policy at the  Hinrich Foundation used a telling analogy in interviews with several media outlets. “Imagine placing a $10 toll on one road and a $3 toll on another,” she explained. “Then you complain that drivers are using the cheaper route. This is a problem you created, and now you’re complaining that countries are taking advantage of it.”

This critique touches on a fundamental debate within the trade policy community. The Trump administration’s tariff increases, justified on national security and China-containment grounds, have been among the highest imposed by the U.S. in decades. While the tariffs aim to protect domestic manufacturers and reduce the trade deficit with Beijing, their height creates powerful incentives for circumvention. Lower-tariff countries become attractive transshipment hubs almost automatically.

The Wall Street Journal’s analysis of trade data showed that Vietnam and other Southeast Asian nations have seen sharp increases in exports to the U.S. of products that were historically made in China. Clothing, electronics components, and furniture shipments from Vietnam jumped 40 percent year-over-year, even as China’s direct exports in the same categories declined. The pattern suggests that capacity rather than genuine origin has shifted.

Enforcement Challenges and International Pushback

Detecting transshipment at scale has proven extraordinarily difficult for U.S. customs authorities. Container manifests can be falsified; supply chains deliberately fragmented to obscure origins; bills of lading forged. The cost of inspecting every container entering the U.S., approximately 20 million per year, makes comprehensive interdiction impossible. Customs and Border Protection currently inspects roughly 10 to 15 percent of cargo, leaving vast blind spots.

The White House proposal for AI-powered scanning offers promise but no certainty. Machine learning algorithms could theoretically identify suspicious shipment patterns, high volumes from intermediary countries, inconsistent supplier information, mismatched product origins, but such systems require training on large datasets of known violations. Creating those datasets requires successful investigations that themselves depend on detection. The problem is self-reinforcing.

Additionally, some of the countries identified in the report have already pushed back. Vietnamese officials have characterized claims of deliberate complicity as unfair, noting that their country manufactures many goods domestically. Malaysian trade officials similarly disputed the implication that their government enables evasion. Mexican negotiators warned that aggressive U.S. enforcement could strain the already complicated relationship under the revised USMCA trade agreement.

International trade law provides few unilateral tools. The U.S. can impose countervailing duties or conduct origin investigations, but these actions are subject to  WTO dispute resolution, which can take years to resolve. Retaliatory tariffs against countries enabling transshipment could trigger their own counter-tariffs, escalating trade tensions.

The White House report explicitly notes that current enforcement measures have been in place for insufficient time to assess their effectiveness. No major seizures of transshipped goods have been publicly announced. No large-scale investigations into sophisticated schemes have concluded. The report thus presents estimates and arguments but limited concrete evidence of a fully coordinated circumvention network spanning 40 countries.

This gap between allegation and evidence has drawn criticism from some quarters. Economists at the Peterson Institute for International Economics have suggested that while transshipment certainly occurs, the scale may be smaller than headline estimates suggest. They point out that many of the countries named, particularly EU member states and advanced economies, maintain sophisticated customs enforcement systems that would make systematic evasion organizationally difficult.

“Transshipment is real. It happens. But the White House report may overstate both the scale and the degree of intentional government collusion,” said one economist familiar with the analysis, speaking on condition of anonymity. “Some of what they’re calling evasion may simply be legitimate supply chain restructuring in response to tariffs.”

Implications for Global Trade

The tariff-evasion problem reflects deeper structural challenges in the contemporary global trading system. Modern supply chains are inherently complex, spanning dozens of countries. Components manufactured in one nation, processed in a second, assembled in a third, and distributed from a fourth are the norm, not the exception. This complexity makes determining true product origin legitimately difficult, creating space for intentional obscuration.

The White House report’s focus on transshipment also reflects a broader Trump administration strategy: using tariffs as a primary tool to reshape global trade relationships and specifically to pressure Beijing on issues ranging from intellectual property to technology transfer. That strategy has broad support within the administration and significant public backing, particularly among manufacturing workers in the Rust Belt.

But it also creates an uncomfortable contradiction. By making tariffs very high, the administration generates powerful incentives for evasion. By then claiming that countries enabling evasion are complicit in a conspiracy, it risks straining relationships with allies and trading partners. And by proposing enforcement mechanisms that could entail significant logistical and financial investment, AI systems, personnel and international coordination it confronts the practical limits of tariff enforcement.

The report stops short of drawing clear policy conclusions, instead calling for further analysis. But its release, timed to a period of ongoing trade negotiations and renewed tensions with Beijing over technology export controls, sends clear signals to trading partners: the U.S. is watching for circumvention and will act if it detects organized evasion.

The Strategic Paradox

The White House’s transshipment report reveals a fundamental paradox in contemporary trade policy. High tariffs on Chinese goods are explicitly intended to protect American workers and domestic manufacturers. Yet those same tariffs create financial incentives for global actors, foreign companies, trading partners, and sometimes domestic importers to find ways around them. The higher the tariff, the stronger the incentive to evade it.

Enforcement measures like AI-powered scanning, stricter origin rules, and retaliatory tariffs may reduce evasion at the margins. But they cannot eliminate it entirely without either eliminating tariffs themselves or imposing verification costs so high that legitimate trade becomes prohibitively expensive.

The report does not grapple with that paradox directly. Instead, it presents transshipment as a conspiracy to be defeated through better enforcement and international pressure. That framing may be politically expedient, but it may not solve the underlying problem. And until policymakers address the tariff structure that creates the evasion incentive in the first place, companies will likely continue finding creative routes around American trade barriers, whether through 40 countries or 100.

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