What are the U.S.’s latest allegations against India?
2-minute summary
The United States has accused India and approximately 40 other countries of facilitating 'The Great Transhipment Scam.' According to a White House report, Chinese exporters are routing goods through third countries—such as India, Mexico, and Vietnam—with minimal assembly, repackaging, or relabeling to evade steep U.S. tariffs imposed under Section 301 of the Trade Act of 1974. The report identifies India as a top 'enabler' of this tariff evasion, specifically pointing to the Pune-Gujarat-Chennai production belt for absorbing Chinese pumps and compressors. The U.S. estimates that $67 billion in goods were transshipped through top hubs in 2025, resulting in $28 billion in lost tariff revenue. While these tariffs succeeded in reducing direct U.S. imports from China, they failed to lower overall U.S. import dependence, merely shifting import sources to third countries. This development adds fresh friction to India-U.S. trade relations.
Why it's in the news
The U.S. White House published a report titled 'The Great Transhipment Scam,' naming India among the top 'enablers' helping China evade U.S. tariffs through illegal transhipment practices.
Background and context
Since 2018, the United States has engaged in a trade confrontation with China, imposing tariffs ranging from 7.5% to 100% under Section 301 of the Trade Act of 1974 to address trade deficits and alleged unfair trade practices. To bypass these high tariffs, Chinese manufacturers began routing exports through third-party nations. By performing minimal processing, repackaging, or relabeling, these goods are exported to the U.S. under the guise of originating from the intermediary countries. In July 2026, the U.S. added a further 12.5% tariff targeting forced-labor compliance gaps. While direct U.S. imports from China fell from $525.8 billion in 2017 to $327.5 billion in 2025, total U.S. imports rose from $2.41 trillion to $3.50 trillion, indicating that tariff policies shifted import origins rather than boosting domestic U.S. manufacturing.
Constitutional provisions
- Article 246 (Seventh Schedule - Union List, Entry 41) — Grants the Parliament of India exclusive power to legislate on trade and commerce with foreign countries.
Committees and reports
- The Great Transhipment Scam Report — A White House report analyzing tariff evasion by China and identifying top enabling countries, including India, Mexico, and Vietnam.
Government schemes
- Production Linked Incentive (PLI) Scheme — Aims to boost domestic manufacturing and value addition, reducing India's reliance on Chinese intermediate components and mitigating transhipment allegations.
International organisations
- World Trade Organization (WTO) — The global body governing trade rules, tariff barriers, and Rules of Origin, which are central to transhipment disputes.
Previous UPSC questions on this theme
- Mains GS-2 2019 — 'What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India's national self-esteem and ambitions.' Explain with suitable examples.
Mains practice: Analyze the implications of the U.S. allegations regarding 'The Great Transhipment Scam' on India's manufacturing sector and its bilateral trade relations with the United States.
Intro:
The recent U.S. White House report, 'The Great Transhipment Scam,' accuses India and other nations of acting as 'enablers' for China to evade U.S. tariffs by routing goods through their territories with minimal value addition. This highlights the complex intersection of global supply chains and trade protectionism.
Implications on India's Manufacturing Sector:
• Supply Chain Dependency: India's manufacturing hubs, such as the Pune-Gujarat-Chennai belt, rely heavily on Chinese intermediate goods (e.g., pumps, compressors) for domestic assembly and export. Restricting these imports could disrupt domestic production.
• Risk of Trade Sanctions: If the U.S. acts on these allegations, India could face retaliatory tariffs, secondary sanctions, or stricter 'Rules of Origin' verification, damaging export competitiveness.
• Push for Genuine Value Addition: These allegations underscore the need for India to transition from simple assembly/packaging to deep domestic manufacturing under initiatives like 'Make in India' and PLI schemes.
Impact on India-U.S. Bilateral Relations:
• Trade Friction: This adds to existing bilateral trade irritants, such as intellectual property rights, agricultural tariffs, and India's purchase of Russian oil.
• Strategic Divergence: While the U.S. and India share strategic alignment in the Indo-Pacific (e.g., via the Quad), economic nationalism and tariff disputes continue to test the resilience of their partnership.
Conclusion:
To mitigate these challenges, India must strengthen its customs enforcement and 'Rules of Origin' certification while accelerating domestic component manufacturing to reduce reliance on Chinese imports, thereby securing its position as a reliable global trade partner.
Prelims practice questions
Q1. With reference to international trade, what does the term 'Transhipment' primarily refer to in the context of tariff evasion?
- The routing of goods through a third country where minor modifications are made to disguise the original country of origin.
- The direct export of goods from a high-tariff country to a low-tariff country for domestic consumption.
- The legal transfer of cargo from one vessel to another at an intermediate port without changing documentation.
- The bilateral agreement between two nations to waive customs duties on intermediate electronic components.
Answer: A. In the context of tariff evasion (as highlighted in 'The Great Transhipment Scam'), transhipment involves routing goods from a target country (like China) through third countries (like India or Mexico) with minimal processing or repackaging to make them appear as if they originated from the third country, thereby evading high tariffs.
Q2. Under which section of the U.S. Trade Act of 1974 did the United States impose tariffs ranging from 7.5% to 100% on Chinese goods starting in 2018?
- Section 404
- Section 301
- Section 232
- Section 201
Answer: B. According to the article, the U.S. imposed tariffs ranging from 7.5% to 100% on goods from China under Section 301 of the Trade Act of 1974 for unfair trade and tech practices.
Q3. Which of the following regions was specifically highlighted in the White House report as a hub in India that 'absorbs' Chinese components like pumps and compressors, affecting U.S. supply chains?
- The Bengaluru-Hyderabad-Chennai IT corridor
- The Mumbai-Thane-Pune industrial region
- The Pune-Gujarat-Chennai production belt
- The Gurugram-Noida-Delhi manufacturing zone
Answer: C. The article explicitly mentions the 'Pune-Gujarat-Chennai production belt' as the region that 'absorbs' pumps and compressors from China, thereby affecting industrial supply chains in U.S. cities like Cincinnati, Dayton, and Columbus.
Revision flashcards
- What is 'The Great Transhipment Scam' report? A White House report accusing ~40 countries, including India, of helping China evade U.S. tariffs by routing goods through their territories with minimal modifications.
- Which Indian manufacturing belt was specifically named in the U.S. transhipment report? The Pune-Gujarat-Chennai production belt, noted for absorbing Chinese pumps and compressors.
- What are the top three transhipment hubs identified by the U.S. Office of Trade and Economic Analysis in 2025? Mexico, India, and Vietnam.
- What is the significance of Section 301 of the U.S. Trade Act of 1974? It allows the U.S. President to impose tariffs or trade sanctions on foreign countries that violate trade agreements or engage in unfair trade practices.
- How did U.S. tariff policies on China affect overall U.S. imports between 2017 and 2025? Direct imports from China fell, but total U.S. imports from all countries rose, indicating a shift in import sources (like transhipment) rather than a boost in U.S. domestic production.