The White House has identified more than 40 countries it says present elevated risks of illegal transhipment of goods into the US to evade tariffs, with plastics potentially affected by the practice.
A new report from the Trump Administration estimates that illegal transhipment could cost the US tens of billions of dollars in lost tariff revenue each year.
The report, titled ‘The Great Transshipment Scam’, says Chinese exporters have increasingly routed goods through third countries since the introduction of US tariffs on China in 2018.
Goods may be subject to limited assembly, finishing, repackaging, relabelling or changes to documentation before being exported to the US.
Lower US tariffs
The White House said these practices can create the appearance that goods originated in a country with lower US tariffs.
In addition to the plastics industry, other manufacturing sectors potentially impacted by the practice include electrical equipment, machinery, aluminium products, and motor components.
It estimates that between $40 billion and $303bn of annual US-bound trade could be exposed to potential transhipment or related trade transfer, depending on the methodology used.
The estimates come from five government and private sector analyses. The White House notes that they use different data and methodologies and are not directly comparable or additive.
The report uses a central estimate of $75bn in annual illegal transhipment. Based on this figure, it estimates around 450,000 displaced jobs, $113bn to $150bn in reduced annual gross domestic product and $19bn to $26bn in associated federal revenue losses.
Model-based estimates
The White House stresses that these are model-based estimates rather than observed job losses. It also acknowledges that the decline in China’s share of US imports since 2018 does not demonstrate that all displaced trade has been illegally rerouted.
‘Some of the shift reflects legitimate changes in production, investment, and sourcing,’ the report stated.
The countries identified are divided into three tiers. The first includes major trading partners such as Canada, the EU, India, Israel, Japan, Mexico, South Korea and Taiwan.
The second includes Brazil, Indonesia, Malaysia, Thailand, Turkey and Vietnam. The report says these countries have significant economic integration with China and substantial manufacturing and logistics capacity.
The third includes a larger group of smaller economies, including Cambodia, Costa Rica, Jordan, Kenya, Morocco, the Philippines, Singapore, the UAE and Uzbekistan.
The White House said the financial incentive is created by differences between US tariff rates. Chinese goods can potentially attract lower duties when routed through a third country, although the report says legitimate manufacturing and substantial transformation must be distinguished from illegal origin shifting.
Strengthening enforcement
The administration said it is strengthening enforcement through measures including increased importer accountability and trade transparency.
It also proposed an artificial intelligence-enabled ‘Detective Border’ to analyse global trade data, identify unusual routing patterns and assess whether declared production capacity is consistent with the origin of goods.
However, the White House said it is too early to determine whether its measures are reducing illegal transhipment.
‘A sound assessment of net effects requires trade and customs data that become available only after a significant lag,’ the report said.
The administration plans to use future trade and customs data to assess whether transhipment volumes, tariff losses and associated economic costs are declining.
