US says India, 40 others enabling Chinese goods to bypass tariffs

New Delhi: The US has named India, along with 40 others, of being part of a "shadow trans-shipment network" that allegedly allows Chinese goods to bypass American tariffs, and announced plans to deploy AI to identify and crack down on such shipments.

India is categorised among the top "enablers" of China's evasion of tariffs in a report titled 'The Great Transshipment Scam', authored by Peter Navarro, Counsellor to the President for Trade and Manufacturing. The report estimated the annual value of illegally transshipped goods at $40-303 billion across the 41 countries.

The US has identified India's Pune-Gujarat-Chennai belt among the Ugly Sister City pairs or areas enabling China to evade tariffs.


The development comes at a time when the US has imposed a 10% tariff on India under a Section 301 probe on forced labour. Washington is also in the process of enacting a legislation that would see tariffs of up to 100% imposed on India among five countries for being the top importers of Russian oil and gas. Both sides are also negotiating a trade deal.

Around $67 billion in US-bound goods were trans-shipped from China through the top hubs - Mexico, India, and Vietnam - in 2025, producing an estimated $28 billion in lost tariff revenue, per the report. It didn't disclose the share of India or identify the concerned exporters. Chinese exporters are increasingly routing goods through third countries, it alleged, adding that limited assembly, finishing, repackaging, relabelling, or documentation changes could create the appearance of a different national origin.

"This may form the basis of future investigation against India," said a trade expert. "Tougher enforcement could mean more inspections, shipment delays, retrospective duties and penalties."

India, Canada and the EU, among others, are placed in "Tier-1 Diversified Scale Leader category which "comprises countries and trading blocs that account for large absolute volumes of China-linked goods while maintaining diversified industrial bases and major US-bound export platforms".

Tier 2 includes Brazil, Indonesia and Malaysia, which allegedly combine significant illegal transshipment volumes with deeper integration into China-linked supply chains. Tier 3 is the largest tier by number of countries including Cambodia, Laos and Myanmar which, as per the report, provide China-adjacent border corridors.

The report highlighted that tariff arbitrage lies at the heart of this trans-shipment arrangement and when a Chinese product that faces a high US tariff is routed through a country with a lower tariff rate, that difference becomes a loss of revenue for the US.