The Great Transshipment Scam

The Historical Predicate

In plain terms, illegal transshipment is smuggling disguised as trade—fraud cloaked in paperwork—and, in truth, nothing new. For centuries, traders have routed goods through third countries to exploit tariff gaps, dodge imperial duties, skirt embargoes, and take advantage of preferential access offered by certain ports.

What has changed in today’s Great Transshipment Scam is not merely the speed and scale of this modern form of smuggling, but the breadth, depth, and sophistication of the global Shadow Transshipment Network through which China’s tariff evasion now moves.

The genesis of this scam dates to 2018, when President Trump imposed Section 301 tariffs to counter China’s unfair trade practices, forced technology transfer, intellectual property theft, and state-directed mercantilism.

While the 2018 Section 301 duties generated benefits for the United States and costs for China, Beijing and its exporters adapted to them by, among other things, quickly learning to route around tariffs. Goods that once moved directly from Chinese ports to the U.S. increasingly moved through lower-tariff jurisdictions, where minor processing, relabeling, repackaging, re-invoicing, or paperwork changes could create the appearance of a new national origin. What began as smaller scale tariff evasion became industrial-scale customs fraud and then a global business model.

Other higher-tariff countries are now adopting the China model to evade the Trump tariffs. While Trump trade policy has been highly effective at incentivizing fairer trade deals and imposing costs on offshoring, illegal transshipment schemes are costing America tens of billions of dollars annually and need to be policed.

The countries that comprise China’s Shadow Transshipment Network include many of America’s largest trading partners. China’s biggest enablers range from Mexico and Canada on U.S. land borders to the European Union, India, Japan, and South Korea.

Given their proximity to China, it is hardly surprising that many Southeast Asian countries play an important role in the network, from Cambodia, Indonesia, and Malaysia to Thailand and Vietnam. More surprising is the sheer number of smaller countries scattered across the globe that also enable the Great Transshipment Scam.

These countries—from Costa Rica and the Dominican Republic in Latin America, to Kenya and Morocco in Africa, to Kazakhstan in Central Asia, to Jordan and the United Arab Emirates in the Middle East—do not move the largest dollar volumes. But China-linked exporters gravitate to them because each offers a specialized comparative advantage: cheap labor, permissive free-trade-zone rules, weak customs enforcement, strategic port access, bonded warehousing, niche assembly capacity, and/or preferential access to the U.S. market relative to China.

Every dollar lost to this Great Transshipment Scam is a dollar stolen from American workers, manufacturers, and taxpayers. When power supplies, control panels, aluminum sheet, valves, plastics, or furniture components are rerouted from China through Mexico, Vietnam, Malaysia, Poland, or the UAE, they destroy or reduce jobs in Milwaukee, Cleveland, Toledo, Hickory, Phoenix, Youngstown, and dozens of other American manufacturing communities.

Without stronger monitoring, detection capabilities, laws, and enforcement, the cumulative macroeconomic effects will extend far beyond lost jobs and degraded communities. They will include billions of dollars in lost Gross Domestic Product output and foregone federal tax revenues.

That is why the strategic response to the Great Transshipment Scam must be a new AI-enabled Detective Border. The U.S. needs a system capable of ingesting and analyzing global trade data with lightning speed, identifying anomalous routing patterns, validating production capacity, and directing enforcement toward the highest-probability offenders.