The Trump White House dropped a pointed accusation at Beijing this week, releasing a report that labels a sprawling tariff evasion network "the Great Transshipment Scam" and estimates it drains up to $26 billion a year from federal coffers.
The report, authored by Peter Navarro, Director of the Office of Trade and Manufacturing Policy, lays out what the administration describes as a systematic effort by Chinese exporters to reroute goods through more than 40 lower-tariff countries to dodge U.S. duties imposed since 2018. The practice, known as transshipping, turns the gap between tariff rates into a profit engine, and the White House says it has ballooned into a multi-billion-dollar problem that undercuts American workers, manufacturers, and the federal treasury.
The scale the White House describes is staggering. AP News reported that the administration estimates between $34.2 billion and $303 billion worth of goods are transshipped annually, with a central estimate of roughly $75 billion. The resulting federal revenue loss falls between $19 billion and $26 billion per year.
Those aren't just customs figures. Just The News reported that the White House estimates the scheme displaces approximately 450,000 U.S. jobs, shrinks GDP by $113 billion to $150 billion annually, and funnels profits to intermediary nations that serve as pass-throughs for Chinese-origin products.
Countries named as conduits include Mexico and Malaysia, among dozens of others that have lower tariff exposure than China. The report argues that once U.S. tariffs on Chinese goods went up in 2018, exporters quickly found alternative routes, turning third-party nations into laundering stations for goods that would otherwise face steep duties at American ports.
Navarro, the report's author, framed the practice not as an incidental side effect of trade policy but as a deliberate commercial strategy. He wrote:
"Transshipment is driven by tariff arbitrage: When a product from one country faces a higher U.S. tariff than it would from another country, the difference becomes a profit opportunity, and even a business model in its own right."
That language signals the administration views transshipment as more than a compliance gap. It treats the practice as an organized effort to exploit the structure of U.S. trade law, one that requires an equally organized enforcement response.
The report itself went further in its rhetoric. As Fox News reported, the White House document stated plainly:
"Every dollar lost to this Great Transshipment Scam is a dollar stolen from American workers, manufacturers, and taxpayers."
Navarro also told reporters that "for years, the great transshipment scam has let communist China launder its exports," a phrase that ties the practice directly to Beijing's trade apparatus rather than treating it as the work of independent actors.
The mechanics are straightforward. A Chinese manufacturer produces goods subject to elevated U.S. tariffs. Rather than shipping directly to the United States and paying those duties, the goods travel first to a third country with a lower tariff rate. They may be minimally repackaged, relabeled, or simply rerouted. When they arrive at U.S. customs, they carry documentation claiming origin in the intermediary country, not China.
The tariff differential is the incentive. If a product faces a 25 percent duty when shipped from China but only 5 percent when shipped from, say, Malaysia, the 20-point gap becomes pure margin for anyone willing to falsify the paperwork. Multiply that across tens of billions of dollars in goods, and the revenue losses pile up fast.
The White House report identifies more than 40 jurisdictions that serve as these pass-through points. The administration has not publicly released a complete list, but Mexico and Malaysia were specifically named as prominent conduits.
The report does not stop at diagnosis. The administration outlined aggressive enforcement steps designed to close the gap, including AI-powered customs screening tools and retroactive tariffing of goods found to carry falsified country-of-origin documentation.
AI-powered screening would allow Customs and Border Protection to flag suspicious shipment patterns in real time, identifying goods whose declared origin does not match trade flow data, shipping routes, or known supplier networks. Retroactive tariffing would let the government go back and impose the correct, higher duty on goods that entered the country under fraudulent paperwork, even after they have cleared customs.
Investigators will need to determine how effectively these tools can operate at scale. U.S. ports process millions of containers each year, and distinguishing legitimate third-country manufacturing from transshipped Chinese goods requires granular supply chain data that customs agencies have historically struggled to verify in real time.
The White House is making a case that extends well beyond lost tariff revenue. The $19 billion to $26 billion in annual revenue losses is the direct fiscal hit, but the administration argues the downstream effects are far larger.
By allowing Chinese goods to enter the U.S. market at artificially low duty rates, transshipment undercuts domestic manufacturers who are pricing their products against what they believe is a tariff-protected market. The White House estimates this displacement costs roughly 450,000 American jobs and reduces GDP by $113 billion to $150 billion each year.
Those figures, if accurate, would make transshipment one of the largest single drags on U.S. manufacturing competitiveness. They would also mean that the tariffs imposed in 2018, designed to pressure Beijing and protect domestic industry, have been significantly blunted by the very evasion the report describes.
Authorities have not publicly confirmed how much of the estimated transshipment volume involves active fraud versus legitimate supply chain restructuring. Companies that genuinely relocated manufacturing to third countries after 2018, building real production capacity in Vietnam or Malaysia, for example, are not engaged in transshipment even if the original motivation was tariff avoidance.
The line between legal supply chain adjustment and illegal transshipment depends on how much "substantial transformation" a product undergoes in the intermediary country. Investigators will need to determine where that line falls for the billions of dollars in goods the report flags. The White House report uses a wide estimated range, from $34.2 billion to $303 billion, which reflects significant uncertainty about the true scale of the problem.
The administration has also not detailed how retroactive tariffing would work procedurally, including whether importers would face penalties beyond the corrected duty, or how far back the government intends to reach.
The timing of the report is notable. The Trump administration has made tariff enforcement a centerpiece of its trade agenda, and framing transshipment as a "scam" driven by "communist China" reinforces the case for maintaining or escalating pressure on Beijing. It also preempts criticism that tariffs have failed to deliver promised economic benefits by arguing that evasion, not policy design, is the problem.
For trading partners named as conduits, the report creates diplomatic pressure. Countries like Mexico and Malaysia now face implicit warnings that their trade relationships with the United States could be complicated if they continue to serve as pass-throughs for Chinese goods, whether knowingly or not.
The 450,000-job displacement figure, if the administration presses it, could also reshape the domestic debate over tariff policy. Critics who argue tariffs raise consumer prices will face a White House counter-narrative: the real cost is not the tariffs themselves but the evasion that renders them ineffective.
The report sets the stage for enforcement action, but the details remain thin. AI-powered screening and retroactive tariffing are concepts, not yet demonstrated programs with track records. Customs and Border Protection has not publicly outlined implementation timelines, staffing requirements, or the legal authorities it would invoke for retroactive collections.
Congressional reaction will also matter. Legislation to strengthen country-of-origin verification, increase penalties for transshipment fraud, or fund customs technology upgrades could follow if the administration pushes for it. Authorities have not publicly indicated whether such legislative proposals are forthcoming.
The central question is whether the enforcement tools can match the scale of the problem the White House has described. A $75 billion central estimate for annual transshipment volume represents an enormous enforcement challenge, one that spans dozens of countries, thousands of importers, and millions of individual shipments.
If tariffs are only as strong as the system that enforces them, the White House just admitted the system has a very large hole. Plugging it will take more than a report.
