India in the Crosshairs of a Global Tariff Game

The latest salvo in the US-China trade war has landed on Indian soil, with Washington warning that our country could become a conduit for Chinese goods seeking to avoid American tariffs. The White House Office of Trade and Manufacturing Policy has flagged India among over 40 countries at risk of facilitating tariff evasion through “transshipment,” a practice where goods are routed through third countries to obscure their origin and avoid taxes.

At first glance, the issue may seem complex, but it reveals a tale of economic desperation beneath the surface. Countries facing higher tariffs have an incentive to facilitate the routing of Chinese goods through their territories, making them vulnerable to being exploited as “transshipment hubs.” India’s inclusion in Tier 1, alongside major economies like Canada and Japan, is a stark reminder that even countries with legitimate trade relationships are not immune to this risk.

Peter Navarro, senior US trade adviser, has specifically named India as one of the countries likely to be targeted by Chinese goods seeking to circumvent American tariffs. His warning is clear: “preferential access to the American market is not a license to launder somebody else’s exports.” This raises questions about India’s preparedness to tackle this issue.

Transshipment often involves minimal processing or assembly of goods, making it difficult for countries to distinguish between legitimate and illicit trade flows. US officials have cited examples of Chinese electric motors being fitted into recliners in Vietnam, as well as so-called “screwdriver factories” where imported components undergo limited assembly before being exported as products originating from another country.

The US plans to crack down on suspected transshipment through various measures, including an executive order aimed at strengthening enforcement powers at US Customs and Border Protection (CBP) and a new AI-based monitoring system. The system is intended to identify shipments carrying a higher risk of transshipment before they arrive at US ports. For India, officials indicated that such provisions could form part of future trade agreements, including a potential US-India deal.

This report highlights the need for India to strengthen its enforcement mechanisms and ensure that our country’s reputation as a legitimate trading partner is not sullied by illicit activities. The proposed executive order and AI-based monitoring system are a wake-up call for India to get its house in order.

The issue of transshipment adds another layer of complexity to the ongoing trade negotiations between Washington and New Delhi. Disagreements over India’s trade and energy ties with Russia have already complicated the talks, and this could become a major sticking point. The US is clear that it will not tolerate countries facilitating tariff evasion, and India must be prepared to address this concern if we want to seal a reciprocal tariff agreement.

In the end, legitimate businesses operating on the fringes of international trade are also victims in this global tariff game. As Navarro put it, “the way to pay less is not to cheat; it is to stop dumping, respect intellectual property, drop your barriers to American goods and move towards reciprocity.” It’s time for India to take this message seriously and ensure that our country does not become a conduit for illicit trade flows.