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Published - August 23, 2026 01:39 am IST

President Donald Trump, left, and Chinese President Xi. File. | Photo Credit: AP

The story so far: Last week, the U.S. accused India of violating what it considers fair trade practices. The White House published a report titled ‘The Great Transhipment Scam’ in which it accused about 40 countries, including India, of helping China evade U.S. tariffs.

Over the last nearly three decades, the U.S. and Chinese economies have become deeply intertwined, with the U.S. increasingly relying on China to be its manufacturing hub, and China relying on the U.S. as its market and for investment. This is a somewhat simplistic assessment of their engagement, but it is also the most relevant for the current context. 

This relationship has resulted in the U.S. running huge trade deficits with China. That is, importing much more from the country than it exports to it. U.S. President Donald Trump has long spoken about his concerns about vast trade deficits; this is primarily why he insisted on levying tariffs on U.S. trade partners during his second term. 

However, China began facing such actions during Mr. Trump’s first term itself. In 2018, the U.S. imposed tariffs ranging from 7.5% to 100% on goods from China such as electric vehicles, semiconductors, and medical products under Section 301 of the Trade Act of 1974, for unfair trade and tech practices. As per the White House report, this resulted in a shrinking of the U.S.’s trade deficit with China in 2019 and 2020.

On July 24, 2026, the U.S. added a further 12.5% tariff for gaps in forced-labour compliance and the lack of comprehensive legal import prohibitions. 

According to the report, since 2018, Chinese exporters have increasingly been routing goods through third countries to evade tariffs. “Products that previously moved directly from China to the United States were shipped through jurisdictions where limited assembly, finishing, repackaging, relabeling, or documentation changes could create the appearance of a different national origin,” the report stated.

The White House has identified more than 40 countries associated with “elevated illegal transhipment risk”, with India among the top “enablers” of China’s evasion of tariffs. The other countries/regions named as the top enablers are Mexico, Canada, the European Union, Japan, and South Korea.

The U.S. has alleged that these countries are importing Chinese goods, modifying them marginally, and exporting them to the U.S. at tariffs below what these goods would have faced had they directly been exported from China. This, the report said, has led to significant revenue loss for the U.S. government. 

“The Office of Trade and Economic Analysis estimates that approximately $67 billion in U.S.-bound goods were transshipped from China through the top hubs — Mexico, India, and Vietnam — in 2025, producing an estimated $28 billion in lost tariff revenue,” the report said.

As an example, the report mentioned the Pune-Gujarat-Chennai production belt, saying that the region “absorbs” pumps and compressors from China, thereby affecting industrial supply chains in Cincinnati, Dayton, and Columbus in the U.S.

Broadly, the report’s findings suggest that the U.S.’s tariff policy has failed to reduce U.S. imports and increase domestic production. While U.S. imports from China fell from $525.8 billion in 2017 to $327.5 billion in 2025, total U.S. imports from all countries rose sharply from $2.41 trillion to $3.50 trillion. In short, the U.S. replaced many Chinese finished goods with imports from other countries rather than with domestically produced goods. 

As Ajay Srivastava, founder of the think tank Global Trade Research Initiative, said, “Mr. Trump’s tariffs changed the source of imports but failed to reduce America’s overall dependence on imported goods”.

This is yet another way that the U.S. is finding fault with India’s trade policies. During his first term, Mr. Trump found fault with India’s tariffs on luxury motorcycles, after which India reduced them. 

Last year, he blamed India for financing Russia’s war with Ukraine by importing Russian oil; his government hiked tariffs on imports from India to 50% as a penalty. 

More recently, the U.S. Senate passed a Bill with Mr. Trump’s backing that would result in tariffs of up to 100% being levied on India for its Russian oil imports. The Bill is waiting to be introduced and passed in the House of Representatives.

Apart from this, the U.S. has also imposed a 10% tariff on imports from India as a penalty for not doing enough to curb the import of goods made using forced labour. Another investigation on excess capacity is ongoing, which could potentially see tariffs being hiked even further.

The latest allegations that India is helping China evade tariffs are not accompanied by penal actions yet, but that possibility remains. Mr. Trump could decide to impose further tariffs on countries he deems are helping China in this regard. 

For India, any penal action would be a blow to its growth story. Over the last few years, rather than predominantly importing Chinese finished goods, India has been importing raw materials and intermediate goods, using them to manufacture finished goods within the country, and then exporting them. 

For example, electronic components made up 3.3% of India’s imports from China in the first quarter of 2015-16. This has grown to nearly 13% as of the first quarter of 2026-27. Several other goods used in manufacturing in India, such as electric machinery, chemicals, plastics, have seen their shares rise over the same period.

On the other hand, the share of finished goods such as telecom instruments have fallen from about 18% to 11% over the same period of time. Similarly, the share of manufactured fertilisers have fallen from about 7.5% in 2015 to less than 1% in 2026. The share of consumer electronics in imports from China have halved over the same period. 

The ‘Make in India, For the World’ story still relies heavily on inputs from China. If India is forced to curb those imports, its manufacturing costs will rise, making Indian products less competitive globally.

Published - August 23, 2026 01:39 am IST

World / India / China / Explains

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