A $67 bn tariff trail leads the US to India over China trade. Where's the proof?
The White House Office of Trade and Manufacturing Policy released a report titled "The Great Transshipment Scam: Rise, Scope, and Costs" on 13 August 2026, alleging that exporters route Chinese-origin goods through more than 40 countries to bypass US tariffs on China
India was placed in the report's "Tier 1" category of elevated transshipment risk, alongside Canada, the European Union, Israel, Japan, Mexico, South Korea and Taiwan
The report estimated that about $67 billion worth of China-origin goods were transshipped through Mexico, India and Vietnam combined in 2025, resulting in an estimated $28 billion in lost US tariff revenue
The Global Trade Research Initiative (GTRI) said the report provides no country-wise breakdown of the $67 billion figure and does not identify any specific Indian exporter or fraudulent shipment
GTRI noted that aggregate trade data alone cannot establish that India's rising exports represent rerouted Chinese goods rather than genuine manufacturing growth
Rules of Origin and CAROTAR, 2020
Rules of origin determine the "economic nationality" of a traded good for customs and tariff purposes. Under the WTO Agreement on Rules of Origin, non-preferential origin is generally tested through "substantial transformation" — a good is deemed to originate in the country where it last underwent a meaningful change, commonly assessed via a change in tariff heading or a minimum value-addition threshold. Transshipment fraud — mislabeling merely repackaged Chinese goods as India-origin — is precisely the practice such rules exist to prevent.
Key Details
- India's Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR 2020) were notified 21 August 2020 and took effect 21 September 2020, tightening origin verification for goods imported under preferential trade agreements
- Legal basis: Section 28DA of the Customs Act, 1962, inserted through the Finance Act, 2020
- A March 2025 amendment replaced the term "Certificate of Origin" with "Proof of Origin," widening customs authorities' power to demand supporting documentation beyond a standard certificate
- Substantial transformation is typically assessed via change in tariff classification (CTC) or a minimum regional/domestic value-addition percentage specified in each trade agreement
The US allegation is that Chinese goods enter India, undergo only nominal processing (not "substantial transformation"), and are then re-exported to the US labelled as Indian-origin to avoid China-specific tariffs — the exact fraud CAROTAR 2020 is designed to police at India's own borders.
Section 301 of the US Trade Act, 1974
Section 301 empowers the US President/US Trade Representative (USTR) to investigate and retaliate — via tariffs or quotas — against a foreign country's trade practices found "unreasonable or discriminatory" and burdensome to US commerce, without requiring WTO dispute-settlement authorization. It has been the principal legal instrument both for the original China-specific tariffs since 2018 and for more recent supply-chain-linked tariff actions.
Key Details
- Enacted under the Trade Act of 1974; investigations are initiated and concluded by the USTR
- In July 2026, the USTR concluded separate Section 301 investigations into forced-labour practices across 60 economies; India was placed in a lower 10% additional-tariff tier after taking proactive steps to prohibit forced-labour-linked imports
- The original 2018-era Section 301 tariffs on Chinese goods are what transshipment through third countries such as India, Mexico and Vietnam is alleged to circumvent
The transshipment report supplies the evidentiary narrative that could justify tighter Section 301-style customs scrutiny (audits, origin verification) on Indian exporters, layered on top of the already-concluded 10% Section 301 forced-labour tariff on India.
China+1 Manufacturing Diversification and the PLI Scheme
As global companies diversify manufacturing away from China ("China+1"), countries such as India, Vietnam and Mexico have recorded genuine increases in manufacturing exports. India's Production Linked Incentive (PLI) scheme is the central policy instrument for capturing this shift with real domestic value addition — the alternative explanation GTRI offers for India's rising exports to the US.
Key Details
- The PLI scheme was approved by the Union Cabinet in 2020 and now spans 14 sectors, including electronics, pharmaceuticals, textiles, auto components and specialty steel
- Incentives are typically calculated as a percentage of incremental sales over a base year, with rates varying by sector
- GTRI's position is that rising Indian exports reflect genuine manufacturing capacity built partly through PLI-driven investment, not relabelled Chinese goods
The core dispute is whether India's growing trade surplus with the US reflects real "China+1" manufacturing gains or disguised transshipment — a distinction with direct implications for how the US treats Indian exports in ongoing tariff and trade-deal decisions.
- Report released: 13 August 2026, "The Great Transshipment Scam: Rise, Scope, and Costs," White House Office of Trade and Manufacturing Policy
- Estimated goods transshipped via Mexico, India and Vietnam combined (2025): approximately $67 billion
- Estimated US tariff revenue lost: approximately $28 billion
- Tier 1 "Diversified Scale Leader" countries alongside India: Canada, European Union, Israel, Japan, Mexico, South Korea, Taiwan
- Separately, the US imposed an additional 10% tariff on Indian goods (July 2026) under Section 301 forced-labour measures
- GTRI's critique: no country-wise breakdown of the $67 billion figure; no specific Indian exporter or shipment identified