Evaluating the New White House “Great Transshipment Scam” Proposals

The critical issue in any U.S. attempts to enforce against transshipment are the definitions and scope. As Peter Navarro's report accurately states, "Effective enforcement […] requires distinguishing legitimate manufacturing and substantial transformation from pass-through trade and origin shifting." (The Great Transshipment Scam) Given the extensive and diverse global supply chains in today's manufacturing, establishing reasonable criteria for enforcing rules against "transshipment" without sanctioning "legitimate manufacturing" will be a significant challenge. For example, a rule that seems reasonable for assembly of electronic products in Mexico or India is likely to be quite different from one applicable to garments.

The concept of transshipment is far from new. For decades under U.S. unfair trade laws, interested domestic parties could bring a "circumvention" action when goods effectively originating in a country subject to an outstanding antidumping or countervailing order were routed goods through third countries. (Such laws may be used by the administration as a legal basis for its transshipment efforts.) (Legal Basis) The Trump Administration also proposed an anti-circumvention rule in July 2025, which apparently was never implemented.

Circumvention occurs where there is minimal local value added in the third country. (19 U.S.C. § 1677)  A recent (2023) example related to solar panels originating in China. Soon after the U.S. AD/CVD orders against China were published, shipments of solar panels from Malaysia, Thailand, Vietnam, and Cambodia to the United States greatly increased in volume. The U.S. domestic solar panel industry filed an anti-circumvention action. Ultimately, the Department of Commerce concluded, because of the low valued added in the intermediate countries and the heavy dependence on Chinese-source components, that the orders were being circumvented. With several delays not relevant here the solar panels from Vietnam and the other three countries were made subject to the tariff rates that would have been applied if the panels had been shipped directly from China. (Final Scope Determination)

The Navarro transshipment tariffs, if applied, differ from past circumvention actions in two critical ways. First, their application would not be limited to goods subject to an outstanding U.S. antidumping, countervailing duty or other order. Secondly, instead of limiting the actions to specific goods from a given country or countries, the anti-transshipment actions could apply to more than 40 countries, not only low labor cost nations such as Mexico, India, Turkey and Vietnam, but to the EU, Canada, Israel, South Korea and Japan. Thus, while the administration’s primary concern is over Chinese efforts to evade U.S. tariffs as the primary instigator of transshipment for duty evasion, the threatened new chapter in America's trade war with the world would cut a much wider swath.

Implementing a broad transshipment policy could be difficult politically as well as legally. The likelihood of broader retaliation against higher tariffs from former friends and allies (particularly the EU and Canada) beyond current very limited levels exists. Although China as the transshipment initiator rather than one of the intermediate countries is not a direct target, the economic interests of the Chinese government and hundreds of Chinese enterprises could be directly harmed. Under such circumstances it would be naive to assume that China would not retaliate with its own pressure points such as restrictions on rare earth minerals, reduction of agricultural purchases from the United States agribusiness, and import restrictions.

Other downsides are obvious. The restrictions would inevitably be inflationary, raising both finished product and supply chain costs for both U.S. businesses and consumers. The administrative burdens, including new record-keeping, would be substantial, particularly for small and medium-sized enterprises and on Customs and Border Protection, even once the new AI-enabled “Detective Border” mechanism proposed under the White House report were perfected. Some important products could at least temporarily be unavailable in the United States. The uncertainties created as of August 14 as to how the Navarro proposals will be implemented in the real world of exports and imports will add further to those created since April 2025, continuing their chilling impact on new investment and hiring both in the U.S. and elsewhere.

Future tariff treatment of goods traded under the USMCA is also in question. Despite 25%-50% tariffs on aluminum, steel, copper, their derivative goods as well as up to 25% on autos and auto parts, 80%-85% of Mexican and Canadian goods meeting USMCA rules of origin currently enter the U.S. duty free.(U.S. Tariff rates)  (This may change August 19 if Mr. Trump proceeds with his threat to impose 50% tariffs on about $20 billion worth of USMCA-compliant products entering from Canada.) (New Tariffs on Canada) Given the number of Mexican exports to the U.S. that rely on some parts and components from outside North America that still meet USMCA rules of origin, there is no guarantee that such goods will continue to enter duty free, even if legally eligible to do. The same applies to goods imported from Canada and under the United States-Korea FTA and other U.S. FTAs with more than a dozen other countries. (U.S. FTAs)

None of these comments should be interpreted as advocating against reasonable, well-targeted new rules against transshipment. Transshipment has been a recurring problem with China not only in solar panels but for the United States and many other countries with steel, autos and other commodities such as some consumer electronic devices, clothing, and textiles. The departure by the Trump administration from U.S. most-favored nation tariffs averaging around 3% and FTA tariffs normally set at zero in favor of widely differing tariff rates applicable almost on a country-by-country basis seem likely in my view to have exacerbated the urgency for enterprises to seek lower tariff rates, and not only by China. Estimates of annual U.S. tariff losses according to Dr. Navarro’s data range from $18 billion to $136 billion.

However, it can be argued that the U.S. administration should follow a more focused approach, prioritizing goods that have national security implications and/or could realistically be produced in the United States. It would be sensible to negotiate initially with a few suspected major transshipping destinations, such as Vietnam, India, and Mexico. It is difficult to see how Dr. Navarro's anticipated broad-brush approach will work out well for the United States and major trading partners. As Dr. Navarro well understands, transshipping is a problem primarily created by China, with an assist from the U.S. administration’s tariff policies (including but not limited to the widely varying levels applicable to China) and pressures from both Trump and Biden administrations to delink production destined for the United States from China.. Unfortunately, for legitimate economic, political, and national security reasons the United States cannot hold China accountable for fear of risking damaging retaliation, as noted earlier.

Finally, as the paper is authored by Dr. Navarro, probably the administration's most doctrinaire protectionist, it will be surprising to some observers if the applicable rules are designed to address legitimate transshipping concerns rather than as another (probably futile) attempt to reduce the U.S. trade deficit, generate high volumes of tariff revenue, or encourage U.S. manufacturing and job creation. Rather, the policy is as much or more likely to increase costs of imports for many if not most American importers and consumers. Unfortunately, expanding Mr. Trump's tariff war with the rest of the world may well be considered by some to be an additional fringe benefit in itself, as will be the rush by well-connected foreign producers and importers to obtain exceptions.