US puts India on radar over China tariff evasion: What is ‘shadow trade’?

India has been placed in a US trade report targeting an alleged Chinese transshipment network. Here is what Washington is alleging and why it matters for Indian exporters.

The United States has accused India and more than 40 other countries of helping Chinese exporters circumvent US tariffs by routing goods through third countries and disguising their original country of production.

What the US is alleging

A White House Office of Trade and Manufacturing Policy report, titled “The Great Transshipment Scam”, alleges that Chinese companies have increasingly used third countries to relabel, repackage, re-invoice or carry out limited processing on goods before exporting them to the US.

US trade adviser Peter Navarro said the practice expanded after Washington imposed Section 301 tariffs on Chinese goods in 2018.

The report estimates the value of potentially illegally transshipped goods at between $40 billion and $303 billion a year, depending on the methodology used.

Why India has been named

The report places India in Tier 1, alongside major economies including Canada, the European Union, Japan, Mexico, South Korea, Israel and Taiwan.

The tier describes large industrial economies where transshipment risks are considered to exist alongside legitimate trade.

Navarro specifically mentioned India and Vietnam while warning that countries could face greater scrutiny as the US increases tariffs.

The report also referred to an industrial production belt spanning Pune, Gujarat and Chennai, alleging that Chinese-origin pumps and compressors could undergo processing in India before entering the US market.

Being named in the report does not by itself establish that all Indian exports or Indian companies are involved in tariff evasion. The report concerns alleged transshipment risks and the US government's proposed enforcement response.

How the US plans to detect transshipment

Washington says it plans to strengthen enforcement through three main measures:

Greater CBP enforcement: US Customs and Border Protection would receive stronger powers to investigate suspected transshipment.

AI-powered monitoring: A proposed system called “Detective Border” would analyse shipment routes, product classifications, ownership links and production capacity.

Trade-deal conditions: Anti-transshipment provisions would be included in future US trade agreements.

Officials said suspected transshipment could result in additional duties, penalties or exclusion from the US market.

Why this matters for India

The announcement comes while India and the US are negotiating a reciprocal trade agreement.

The new US approach could put additional scrutiny on Indian exporters, particularly sectors where Chinese components or intermediate goods are used.

It could also complicate the wider trade relationship as Washington continues to raise concerns over India's purchases of Russian oil.

The key issue is country of origin. If a Chinese product is only minimally processed or repackaged in another country and then presented as originating from that country, US authorities can treat the arrangement as tariff evasion.

For India, the challenge is distinguishing legitimate manufacturing and value addition from simple routing of Chinese goods. The proposed AI-based system suggests Washington wants to examine not only where a product is shipped from, but also its production capacity, ownership, components and supply-chain history.

The development could therefore increase compliance requirements for Indian exporters seeking access to the US market, particularly if anti-transshipment provisions become part of a future India-US trade agreement.