Is India a “shadow transshipment” hub? The data says otherwise

The White House Office of Trade and Manufacturing Policy’s August 2026 report, ‘The Great Transshipment Scam,’ names India among the “Diversified Scale Leaders” of a 40-country network allegedly helping China evade the US tariffs. The claim rests on a striking chart: as China’s share of US imports fell after the 2018 Section 301 tariffs, the combined import share of India and 39 other countries rose in near mirror image. The report calls this “unlikely to be explained by chance alone.” For India, the evidence does not hold up.

A conflation at the core. The report flags any product where China’s US import share falls, a third country’s China imports rise, and that third country’s US exports rise—a correlation that cannot distinguish industrial upgrading from origin-laundering. It also conflates legitimate transshipment with illegal transshipment. Routing a genuinely transformed good through a third country is ordinary trade; falsely claiming that country as the origin to dodge duties is fraud. The report’s definition of “China-linked” goods—anything carrying “indicia” of Chinese content—risks capturing what global-value-chain integration is supposed to produce. Countries import Chinese components and add their own value before re-export. That is not evasion; it is manufacturing.

What India’s own numbers show. Between 2014 and 2024, India’s goods exports to the US grew 1.86 times, from $42.5 billion to $79.4 billion, but US exports to India grew even faster, 1.94 times. A rising two-way relationship, with India’s global exports also up 1.36-fold, is hard to square with a “mere pass-through” story tailored to one market.


More telling is what India now sells. Labour-intensive categories (such as textiles, apparel, gems and jewellery) that once dominated India’s US-bound exports have shrunk; textiles alone fell from 16.5% to 13% of the export basket. Capital- and skill-intensive sectors, such as machinery, electricals, pharmaceuticals, and chemicals, have captured that space, rising from 7.8% to 23.7%. This same shift appears in India’s exports to the world, not just the US, indicating that changes reflect structural transformation, not tariff arbitrage aimed at Washington.

The underlying capabilities back this up. UNCTAD’s productive-capacities index puts India’s score up from 40.3 to 46.4 over the decade, the highest gain among ASEAN peers. India’s export basket has also diversified across both products and markets, not narrowed into a few China-dependent corridors, while gross fixed capital formation in computers and electronics more than quadrupled between 2014 and 2022. None of these fits “screwdriver factories” built to disguise origin. Most decisively, OECD Trade in Value Added (TiVA) data show that between 2012 and 2022, as India’s gross exports to the US rose 1.87 times, the domestic value added embedded in those exports rose even faster, by 1.89 times. That is the opposite of what a transshipment hub, which adds minimal value while passing through someone else's content, would show.

A “scam,” or textbook arbitrage? Even setting India’s data aside, the framing deserves scrutiny of its first principles. When a government sets differentiated tariffs, firms respond predictably and rationally by rerouting trade and investment toward lower-tariff jurisdictions—a response that takes more than one form. Some firms may mislabel goods to disguise origin; that is fraud, worth punishing. Much of the “reallocation” the report documents, however, is ordinary business decision-making: factories relocating, suppliers diversifying, and genuine investment shifting to wherever tariffs are lowest. Calling all these a “scam” blurs a real enforcement problem with a lawful response economists would have forecast the moment the tariff schedule was drawn up. The report itself acknowledges the mechanism plainly—tariff differentials, it says, “are necessary to address differences in trading practices and levels of reciprocity, but they also create opportunities for arbitrage and evasion.” Having built the incentive into its own tariff design, the administration cannot then treat the predictable response as a foreign “scam.”

That is precisely what the WTO’s most-favoured-nation (MFN) principle was built to pre-empt. An MFN, rule-based tariff structure removes this arbitrage opportunity at its root by applying, with narrow negotiated exceptions, the same tariff to the same product regardless of source, so origin games yield no reward. Washington’s shift toward bilateral, “reciprocal” tariffs has reopened exactly the kind of gap MFN discipline was designed to close, and part of the cost now lands on the US Treasury too. A discriminatory tariff system creates room for discriminatory arbitrage; that is the system working as trade theory would predict, not a scandal manufactured by 40 “bad actor” countries. A durable fix lies at least as much in the rule-based, non-discriminatory framework Washington is weakening as in an “AI Detective Border” chasing the symptom.

India’s export data tell a story of competitiveness, not conspiracy. A tariff design that mistakes one for the other deserves at least as much scrutiny as the countries it accuses.

C. Veeramani is Director and RBI Chair Professor, Centre for Development Studies (CDS), Thiruvananthapuram; Himanshu Jaiswal is Consultant, Centre for Social and Economic Progress (CSEP), New Delhi.