WASHINGTON — The White House said China has built what it calls a "shadow transshipment network" spanning more than 40 countries, including South Korea, to route products into the United States and evade steep tariffs, in a statement released on the 13th local time. It estimated that such illegal transshipment could reach as much as $303 billion (about 431 trillion won) a year and pledged to strengthen enforcement using artificial intelligence. In particular, it singled out South Korea's semiconductor belt in Gyeonggi Province as a potential distribution route for China-linked integrated circuits (HS 854239), warning that this could pressure chip production in parts of the United States.
The White House Office of Trade and Manufacturing Policy issued a 25-page report titled "The Great Transshipment Fraud" on the 13th local time, saying that after the U.S. imposed tariffs on China in 2018, Chinese exporters increasingly routed goods to the U.S. through third countries to circumvent duties. The average U.S. tariff on Chinese goods currently stands at 50%. According to the report, exporters ship these goods to lower-tariff countries and re-export them to the U.S. after changing only labels and similar markings, avoiding the higher rates. The White House explained that when Chinese goods pass through Mexico and Canada under the U.S.-Mexico-Canada Agreement (USMCA), tariffs fall to zero or near zero, and that rates also drop sharply when goods move through countries such as South Korea, Japan, the European Union and Vietnam.
The report divided countries linked to China's illegal transshipment risk into three types, based on factors such as economic size and the degree of integration with Chinese supply chains. "Tier 1," which includes South Korea, was labeled "Diversified Scale Leaders." These are countries with absolutely high China-linked volumes, diversified industrial bases and developed export platforms to the U.S., where illegal transshipment risk can be intermingled within broad flows of legitimate trade. The group also includes Japan, the EU, Canada, India, Israel, Mexico and Taiwan. In South Korea's case, the report pointed to the Gyeonggi Province semiconductor belt as a potential distribution route for China-linked integrated circuits (HS 854239), raising concern that this could pressure chip production in Phoenix, Austin, Portland and San Jose.
Type 2 countries are those closely integrated into China-linked production and supply chains, including Brazil, Indonesia, Malaysia, Thailand and Turkey. Type 3 countries — Cambodia, Laos and Myanmar — are described as small-scale, niche transshipment candidates whose transshipment volumes are relatively small but that could be used as detour routes for China-linked goods.
Drawing on government and private estimates, the White House projected that potential illegal transshipment from China could reach about $40 billion to $303 billion a year (about 57 trillion to 431 trillion won), with resulting tariff losses in the tens of billions of dollars. It said that if annual illegal transshipment is assumed to be $75 billion (about 107 trillion won), federal revenue losses would amount to $19 billion to $26 billion (about 27 trillion to 37 trillion won). It added that broader economic damage could follow, including the displacement of about 450,000 jobs and an annual decline in gross domestic product of $113 billion to $150 billion (about 161 trillion to 214 trillion won).
Peter Navarro, White House counselor for trade and manufacturing, said on a press call that day that the report is "a warning to countries that are subject to high tariffs and use third countries as a shield," adding that "China is just an example." The White House said it plans to strengthen enforcement using a "Detective Border" system that applies AI to analyze shipping routes and origin information. Navarro also pointed to South Korea's steel dumping as he raised the issue of Chinese dumping. "Our only defense is tariffs," he stressed, adding that "to ensure tariffs work properly, we must stop large-scale transshipment fraud."
