What do the latest White House allegations mean for India? | Explained
A White House report titled "The Great Transshipment Scam" identified more than 40 trading partners associated with "elevated illegal transshipment risk" — countries through which Chinese goods are allegedly rerouted to reach the US market at lower declared tariffs
India was named among the top "enablers," alongside Mexico, Canada, the European Union, Japan, and South Korea, and was categorised as a Tier-1 "diversified scale leader"
The report estimated that transshipment practices cost the US between $19 billion and $26 billion annually in lost tariff/tax revenue
It cited roughly $67 billion worth of US-bound goods as having been transshipped from China in 2025 through just three hubs — Mexico, India, and Vietnam
Transshipment and Rules of Origin
Transshipment, in the trade-policy sense used here, refers to routing goods through an intermediary country and mislabelling their country of origin so they can enter a third market (here, the US) at a lower tariff than would apply to their true origin. Determining true origin is governed by "rules of origin" — the customs criteria used to decide which country a good is deemed to originate from.
Key Details
- The WTO Agreement on Rules of Origin (Uruguay Round, in force since 1995) sets disciplines of transparency, neutrality, and non-restrictiveness for non-preferential rules of origin, administered jointly with the World Customs Organization
- Where a product involves inputs from more than one country, origin is typically decided using the "substantial transformation" test — assessed via change in tariff classification, a value-added (ad valorem) threshold, or a specified manufacturing/processing operation
- Since August 2025, a US anti-circumvention rule imposes a flat 40% penalty tariff (replacing the standard rate) on goods that US Customs and Border Protection determines were routed through a third country with intent to evade duties, with no authority to mitigate or waive the penalty
The White House report frames India's re-exports of certain goods as a rules-of-origin/substantial-transformation compliance question — whether sufficient value addition or processing occurs in India, or whether Chinese-origin goods are merely being relabelled before onward shipment to the US.
US Reciprocal Tariff Policy on India
Since 2025, the US administration has used a "reciprocal tariff" framework — invoking domestic trade-emergency authority to impose country-specific tariff rates in response to perceived trade imbalances and non-tariff barriers — as the primary instrument of its bilateral trade leverage, including with India.
Key Details
- In August 2025, the US applied a 25% reciprocal tariff on Indian goods, later adding a further 25% penalty tied to India's purchases of Russian crude oil, taking the combined rate to 50% from 27 August 2025
- Following a bilateral trade deal announced in February 2026, the additional 25% Russia-linked penalty was removed, and the reciprocal tariff on India was lowered to 18%, in exchange for India agreeing to zero tariffs on specified US goods and halting Russian oil purchases
- The tariff regime applies sector-wise to categories such as textiles and apparel, leather and footwear, plastics and rubber, organic chemicals, and home décor, with categories like generic pharmaceuticals, gems and diamonds, and aircraft parts flagged for eventual removal
- Negotiations continue toward a broader India-US Bilateral Trade Agreement (BTA) beyond the February 2026 interim deal
The transshipment allegations arrive even as India has just negotiated down its reciprocal tariff rate, raising the prospect of additional US enforcement action (such as the 40% anti-circumvention penalty) on specific consignments identified as Chinese-origin goods routed via India, independent of the general bilateral tariff rate.
- Countries flagged for "elevated illegal transshipment risk": more than 40
- Estimated annual US revenue loss from transshipment: $19 billion to $26 billion
- Value of China-origin, US-bound goods transshipped via Mexico, India and Vietam in 2025: approximately $67 billion (combined, three hubs)
- Current US reciprocal tariff rate on India (post February 2026 deal): 18% (down from a combined 50% in August 2025)
- Anti-circumvention penalty tariff for proven transshipment: 40% (flat, non-mitigable), in force since August 2025