US says China routes goods through 40-plus countries to dodge tariffs, names S. Korea high-risk

The White House said Thursday that China has built what it called a "shadow transshipment network," routing products through more than 40 countries — including South Korea — to export goods to the United States while evading high tariffs.

The administration estimated that the scale of China's illegal transshipment could reach as much as $303 billion a year, and said it would step up enforcement using AI.

The White House Office of Trade and Manufacturing Policy, in a report titled "The Great Transshipment Fraud" released Thursday, said that since the United States imposed steep tariffs on China, Chinese exporters have increasingly routed goods through third countries to circumvent them.

Rather than shipping Chinese-made products directly to the United States, exporters send them to third countries with lower tariff rates, where they undergo minor assembly, finishing, repackaging or relabeling before being exported to the US as if they were made in those countries.

The average US tariff rate on Chinese exports currently stands at 50 percent. The White House said that if such goods pass through Mexico or Canada — which have a free trade agreement with the United States under the USMCA — the tariff rate drops to zero or near zero, and routing through Japan, South Korea, the EU or Vietnam also substantially reduces the rate.

The first Trump administration applied Section 301 of the Trade Act to impose high tariffs on China. The report said the second administration has also raised tariffs on China and numerous other countries, widening the gap in tariff rates between nations and increasing the incentive for illegal transshipment.

Transshipment countries benefit economically from the arrangement by serving as production hubs, processors, warehouses or logistics intermediaries, the report said.

The report divided countries associated with China's illegal transshipment risk into three tiers based on factors including economic size and degree of integration with Chinese supply chains.

Tier 1, which includes South Korea, covers countries with large volumes of China-linked trade, diversified industrial bases and well-developed export platforms to the United States — conditions under which transshipment risk can be embedded within otherwise legitimate trade flows.

Japan, the EU, Canada, India, Israel, Mexico and Taiwan are also in this group.

Tier 2 covers countries closely integrated into China-linked production and supply chains, including Brazil, Indonesia, Malaysia, Thailand and Turkey.

Tier 3 — comprising Cambodia, Laos and Myanmar, among others — refers to smaller, niche transshipment candidates where the volume is relatively limited but the countries could still be used as bypass routes for Chinese goods.

The report described China's transshipment activity as a "zero-sum game" that shifts production away from the United States to third countries, and paired overseas transshipment hubs for Chinese goods with the American manufacturing cities they put under pressure, labeling them "Ugly Sister Cities."

In South Korea's case, the report identified the Gyeonggi Province semiconductor belt as a potential distribution route for China-linked integrated circuits (HS 854239), and said semiconductor production in Phoenix, Austin, Portland and San Jose could face pressure as a result.

Drawing on government and private-sector estimates, the White House said the potential scale of illegal Chinese transshipment could range from about $40 billion to $303 billion a year, with resulting tariff losses also running into the tens of billions of dollars.

Assuming annual illegal transshipment of $75 billion, the report said federal revenue losses would reach $19 billion to $26 billion a year. It added that the broader economic damage could include the displacement of about 450,000 jobs and an annual GDP reduction of $113 billion to $150 billion.

Peter Navarro, the White House adviser for trade and manufacturing, said in a press call that the report was "a warning to countries that are subject to high tariffs and are using third countries as a shield," adding that "China is just an example."

US Trade Representative Jamieson Greer said in a statement that such transshipment practices "undermine the competitiveness of American businesses and workers, hinder efforts to restore jobs and production, and threaten the results of the 19 historic trade agreements President Trump has concluded to date."

The White House said it plans to strengthen transshipment enforcement using an AI-powered "Detective Border" system that analyzes shipping routes and country-of-origin data.

Navarro said the investigation was "a completely separate matter" from the Section 301 probe the Trump administration is currently conducting. However, he said the report could serve as a reference for the USTR as it conducts trade negotiations with individual countries.

Navarro also raised the issue of South Korean steel dumping while discussing China's dumping practices more broadly, and went on to say that "tariffs are our only defense" and that "ensuring tariffs function properly means stopping large-scale transshipment fraud."