US losing up to $26 billion a year as China-linked goods dodge tariffs: White House

The United States is losing an estimated $19 billion to $26 billion in tariff revenue every year because goods, largely linked to China, are being routed through third countries to avoid US import duties, according to a new White House report.

The report, prepared by White House trade and manufacturing adviser Peter Navarro, says the practice, known as transshipment, has become a major challenge for the Trump administration’s tariff policy.

The report identifies about 40 countries at elevated risk of being used as sources or transit points for illegal transshipments. In many cases, Chinese-origin goods are allegedly subject to limited processing, relabelling or repackaging in another country before being exported to the US.

The Chinese embassy in Washington did not immediately respond to a Reuters request for comment.

What is transshipment?

Transshipment is the practice of routing goods through a third country before they reach their final destination.

There can be legitimate reasons for goods to pass through another country. But it becomes illegal when exporters deliberately disguise the true country of origin to avoid tariffs.

The White House report says Chinese goods have increasingly been routed through countries including Mexico and Malaysia, where they may undergo limited processing or assembly before being sent to the US.

More from Business

Such a route can make the goods appear to originate from the intermediary country rather than China, potentially allowing importers to avoid higher duties.

The report says routing Chinese products through Mexico or Canada could eliminate duties entirely in some cases.

How big is the tariff problem?

The White House report gives a wide range for the value of goods potentially being transshipped to evade US tariffs — from about $34 billion to $303 billion a year.

For its calculations, however, it uses a central estimate of $75 billion worth of transshipped goods.

Based on that estimate, the administration calculates that the US could be losing between $19 billion and $26 billion in tariff revenue annually.

The report also estimates that the $75 billion in transshipped goods could be associated with about 450,000 US jobs displaced, including direct and indirect employment.

China at the centre of the US concerns

The White House argues that the problem became more pronounced after the first Trump administration imposed tariffs on Chinese goods in 2018.

As tariffs increased the cost of directly exporting Chinese products to the US, exporters gained an incentive to find alternative routes.

The report says the resulting shift can partly explain why US imports directly from China have fallen while imports from other countries have increased.

US imports from China fell to a 16-year low of $308.7 billion in 2025, according to US Census Bureau data. At the same time, imports from countries including Mexico and Vietnam have risen sharply.

The administration’s argument is that some of that trade may represent genuine changes in supply chains, but some may also involve Chinese goods being routed through other countries to circumvent US duties.

Why Mexico and Vietnam matter

The issue creates a challenge for Washington because the rise in imports from other countries does not necessarily mean US companies have stopped relying on Chinese manufacturing.

A product can contain Chinese components, undergo limited processing elsewhere and eventually enter the US under a different declared origin.

This makes enforcement of rules of origin increasingly important for the Trump administration.

The White House has warned that countries facilitating tariff evasion could face consequences in future US trade agreements.

US turns to AI to detect tariff evasion

The US is also turning to artificial intelligence to tackle the problem.

The US Customs and Border Protection agency is deploying AI tools to identify suspicious shipments, according to the report.

The technology can examine factors including container markings, packaging patterns and X-ray images to identify inconsistencies between what importers declare and what cargo may actually contain.

The administration also says importers found to have falsified the origin of goods can face tariffs and penalties retrospectively.

The move marks a shift from simply raising tariffs towards trying to ensure that the duties already imposed are actually collected.

A new challenge for Trump’s tariff strategy

The findings highlight a basic problem facing Trump’s tariff policy: raising duties does not necessarily stop goods from reaching the US market if companies can find cheaper routes around them.

Tariff differences between countries can create an incentive for exporters to alter supply chains or route products through countries facing lower duties.

The White House itself acknowledges that tariff differences can increase the incentive for illegal transshipment, even as it argues that different tariff rates are necessary to address differences in trading practices.

For Washington, the focus is therefore increasingly shifting from tariffs alone to where goods are actually made, how much processing takes place in third countries and whether their declared country of origin is genuine.

The issue is also likely to add another layer to already tense US-China trade relations, with Chinese President Xi Jinping expected to visit Washington in September.