US–India Trade Tensions: The Great Transhipment Scam and Tariff Allegations

US–India Trade Tensions Latest News

• Recently, the U.S. accused India of violating fair trade practices through a White House report titled ‘The Great Transhipment Scam’. 
• The report named about 40 countries, including India, as helping China evade U.S. tariffs — the latest in a series of American trade grievances against India.

Background: The U.S.–China Trade Relationship

• Over nearly three decades, the U.S. and Chinese economies have grown deeply intertwined — the U.S. relying on China as a manufacturing hub, and China relying on the U.S. as a market and source of investment. 
• This relationship has produced large U.S. trade deficits with China, a concern President Trump has repeatedly raised, driving his tariff policy through both terms.
• China faced tariff action as early as 2018, when the U.S. imposed duties of 7.5% to 100% on Chinese goods such as electric vehicles, semiconductors, and medical products under Section 301 of the Trade Act, 1974, citing unfair trade and technology practices. 
• The White House report claims this narrowed the U.S.–China trade deficit in 2019 and 2020. 
• In July 2026, Washington added a further 12.5% tariff citing gaps in forced-labour compliance.

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What is the ‘Great Transhipment Scam’?

• According to the report, Chinese exporters have increasingly routed goods through third countries since 2018 to dodge tariffs — through limited assembly, repackaging, relabeling, or documentation changes that create the appearance of a different country of origin.
• The U.S. has identified more than 40 countries with “elevated illegal transshipment risk,” naming India among the top “enablers,” alongside Mexico, Canada, the European Union, Japan, and South Korea. 
• The allegation: these countries import Chinese goods, modify them marginally, and re-export them to the U.S. at tariffs lower than China would face directly — causing significant U.S. revenue loss.

India’s Alleged Role

• The U.S. Office of Trade and Economic Analysis estimates that about $67 billion in U.S.-bound goods were transshipped through the top three hubs — Mexico, India, and Vietnam — in 2025, resulting in an estimated $28 billion in lost tariff revenue. 
• The report specifically cites the Pune-Gujarat-Chennai industrial belt, alleging it “absorbs” Chinese pumps and compressors, thereby affecting supply chains in U.S. manufacturing hubs like Cincinnati, Dayton, and Columbus.

Did U.S. Tariffs Actually Work?

• The report’s broader findings reveal a policy shortfall: U.S. imports from China fell from $525.8 billion in 2017 to $327.5 billion in 2025, but total U.S. imports from all countries rose sharply from $2.41 trillion to $3.50 trillion over the same period. 
• This suggests the U.S. substituted Chinese finished goods with imports from other nations rather than boosting domestic production.
• Experts noted that the tariffs changed the source of imports without reducing America’s overall import dependence.

A Pattern of U.S. Trade Grievances Against India

• This is not an isolated complaint. In Trump’s first term, the U.S. objected to India’s tariffs on luxury motorcycles, prompting a reduction. 
• Last year, Washington blamed India for financing Russia’s war effort through oil imports, raising tariffs on Indian goods to 50% as a penalty. 
• More recently, the U.S. Senate passed a Trump-backed Bill proposing tariffs of up to 100% over India’s Russian oil imports, pending introduction in the House of Representatives. 
• Separately, a 10% tariff already applies to Indian imports over inadequate curbs on forced-labour-linked goods, with a further investigation on excess capacity ongoing. The transshipment allegations carry no penal action yet, but further tariffs remain a possibility.

Implications for India’s Economy

• Unlike a simple pass-through of Chinese finished goods, India’s trade pattern shows deepening manufacturing integration. 
• Electronic components rose from 3.3% of India’s imports from China in Q1 2015-16 to nearly 13% in Q1 2026-27, alongside rising shares of electric machinery, chemicals, and plastics — signalling genuine value addition rather than repackaging. 
• Correspondingly, the share of finished goods has declined: telecom instruments fell from about 18% to 11%, manufactured fertilisers from 7.5% to under 1%, and consumer electronics roughly halved.
• This data undercuts the “transshipment” characterisation, but any punitive U.S. action would still hurt India’s ‘Make in India, For the World’ strategy, which relies heavily on Chinese inputs. 
• Restricting these imports would raise India’s manufacturing costs, eroding the competitiveness of its exports.

Conclusion

• The U.S.’s transshipment allegations add to mounting trade friction with India, following disputes over oil imports and forced-labour compliance. 
• While India’s rising import of intermediate goods suggests genuine manufacturing integration rather than mere relabeling, any resulting U.S. tariffs could raise costs and threaten India’s export competitiveness and manufacturing ambitions.

Source: TH