The White House has shown no sign of a truce in one of the most contentious aspects of India-US trade relations with a new report that has revived a dispute dating back to the 1960s.Officials on both sides say they are close to a deal, but a new White House report has raised a dispute that dates back to the 1960s in one of the thorniest areas of India-US trade relations. The 25-page document, The Great Transshipment Scam: Rise, Scope, and Costs, released by the Office of Trade and Manufacturing Policy on August 13, ranks India among Tier 1 countries that it suspects are facilitating the entry of Chinese goods into the U.S. market under "transshipment" while attributing minimal value to repackaging. The United States is hardly an outlier in that group, and the others in it are places that are well known in that regard: Canada, the European Union, Israel, Japan, Mexico, South Korea and Taiwan, all major and diverse trading partners, and not some backwater in the middle of nowhere. Washington describes this group as "Diversified Scale Leaders" a diplomatic term for those economies that are big enough and diverse enough that illegal rerouting can be done without the obvious detection of illegal activity.

The figure that makes headlines is $67 billion, which equals the volume of China-origin goods that last year passed through Mexico alone, India and Vietnam the estimate comes from the US Commerce Department and its calculation of the cost to the US Treasury of the lost tariff revenue. The trade adviser who has emerged as the face of this crackdown, Peter Navarro, did not hold back when briefing reporters on a system that allows Chinese exporters to "launder" their products through over 40 countries since Washington first slapped Section 301 tariffs on them in 2018. The report's broader estimate of the annual scale of the practice is even broader, between $40 billion and as much as $303 billion—and that is as much an illustration of the uncertainty of the exercise as of the size of any wrongdoing.

In this case, what constitutes transshipment is important and the report takes great care to draw a line that most casual readers will not read. It's not a crime or even a novelty to do business in a third country: the world's supply chains have depended on staged manufacturing and sourcing of components for decades. The violation only takes place if goods pass through with inadequate genuine processing to be considered a new country of origin, but with the appearance of being the origin. It highlights the so-called "screwdriver factories," where imported components are put together with the minimum of value-added processing to fulfill a different origin claim, but not to provide any significant economic benefit. As an example of exposures within India, the report refers to the Pune-Gujarat-Chennai corridor, which supplies pumps and compressors with HS codes 8413 and 8414 citing it as a corridor to watch, not one to confirm violations.

This has been the foundation of the Indian counter-offensive. The evidence presented in the report for India is much thinner than the headline number suggests, says the Global Trade Research Initiative, a think tank in Delhi which has closely followed the tariff story since Washington first slapped a 25 percent duty on Indian goods last year. The $67 billion estimate is not by country, so no one would be able to say with any certainty what percentage is actually from Indian assembly and what percentage is from Mexico or Vietnam, both of which have far longer documented records of assembly operations done in China. It cannot be said that aggregate trade growth is definition of rerouting as India's exports to the US have been growing for genuine manufacturing investments, diversification among global buyers towards China-plus-one, and because of sector-level demand which has nothing to do with China, the institute argues. Most important of all, the report does not claim the Indian government or any individual company is responsible for enabling evasion, a point that often gets forgotten when a figure such as $67 billion is mentioned in news reports.

There's also a fairness argument that has been raised time and again this year, and which is gaining a new significance in this instance. The doubters asked whether India should be penalised more than China, which imported $62.6 billion of Russian crude in 2024, or the European Union with $39.1 billion of Russian crude imports during that same year, in which Washington had not raised its tariffs on Russian imports. The emphasis of the South China Sea dispute is that Beijing has a more powerful hand in the cards that are essential to the American defence and the technology industry, like rare earths, gallium and germanium. The transshipment charge sits on top of a already high tariff barrier and with no specific evidence against a particular country, it fosters a sense in New Delhi that India is being dealt a harsher blow than the country at the centre of the controversy.

The period is particularly delicate due to the state of the economy. The current tariff regime has already severely compromised India's merchandise exports to the US, which were expected to reach $90 billion, with GTRI estimating that they will lose well into double digits in just a few months, in labour-intensive areas like gems and jewellery, textiles, engineering goods and seafood. The drop in exports of fish and crustaceans, iron and steel articles and diamonds and other gold-related products have been reported to be around 20 per cent, 18 per cent and more than 15 per cent, respectively, resulting in a corresponding reduction in factory jobs in Gujarat, Tamil Nadu and Punjab. In that context, any new, albeit hedged in the fine print, allegation might provide a justification for the US customs officials and the administration's new “Detective Border” screening platform, which is being developed by artificial intelligence to track suspicious shipping routes, at a time when exporters are least able to afford additional hassle. India's Commerce Secretary has indicated that the two countries are in regular touch on the matter of a larger trade pact, and this is where the latest spat will be put to the test, rather than in a press release.The tariff situation is already so dismal for Indian goods exported to the US that even before the allegation of transshipment, GTRI's own sector-wise estimate of the loss of ground is shown above.