Summer reading: The White House may have the map right

The White House recently published a report with a title difficult to ignore: The Great Transshipment Scam.

Its central argument is that part of the sharp decline in direct Chinese exports to the United States since the 2018 tariffs did not simply disappear. Some of that trade, it argues, was rerouted through third countries. At the end of the analysis, the White House cites $89.6 billion of trade consistent with this pattern.

The claim was bold enough that we wanted to look for ourselves. We used CEPII’s BACI database, which records bilateral world trade product by product, and we compared 2017, before the Section 301 tariffs, with 2024.

The basic test is intuitive.

Take a particular product. China loses share in the U.S. market. At the same time, a third country begins importing more of that same product from China and exporting more of it to the United States.

That does not prove transshipment. But it is precisely the statistical pattern one would expect if rerouting were taking place.

Our first result was remarkable. Applying a broad screen similar to the one described by the White House produced $89.63 billion. Almost exactly the White House figure.

That was interesting. It was not yet convincing.

The problem is that such a broad calculation can capture a great deal of perfectly legitimate trade. A country may already have been exporting that product to the United States before the tariffs. It may have developed new production capacity. Also, Chinese components may have undergone substantial transformation abroad. And we cannot forget that Chinese companies may simply have moved manufacturing overseas. Aggregate trade statistics cannot distinguish those possibilities from simple rerouting. So we made the test harder:

• We counted only the increase relative to the pre-tariff period rather than the entire existing trade flow.

• We required the China-to-third-country and third-country-to-U.S. legs actually to move in the expected direction.

• We constrained the amount attributed to third countries by the corresponding decline in China’s direct exports to the United States.

• We prevented several countries from effectively claiming the same disappearing Chinese export flow, which would create double counting.

Finally, we imposed what seemed an indispensable condition: the product itself had to have been affected by the U.S. Section 301 tariff increase on China.

After all those constraints, the number falls dramatically and the $89.6 billion becomes about $18 billion. That is the figure with which we are much more comfortable.

It does not mean the White House figure is wrong because the two numbers answer different questions.

• The White House’s $89.6 billion represents a broad universe of trade consistent with the rerouting pattern.

• SOAPBOX $18 billion asks something more demanding: how much of that pattern survives after aggressively removing pre-existing trade, constraining the flows, limiting double counting and requiring actual Section 301 exposure?

There is an obvious reason for being cautious. Aggregate customs statistics can show that China lost U.S. market share in a product, that another country simultaneously bought more of that product from China and sold more of it to America, and that Washington had imposed additional tariffs on that very product.

What those statistics cannot tell us is what happened inside the factory. They cannot determine whether a Vietnamese, Mexican or Turkish producer carried out enough manufacturing to create a legitimate new origin. They cannot distinguish substantial transformation from minor processing, repackaging or relabelling.

For that reason, our $18 billion is an estimate of potential rerouting, not illegal transshipment.

Establishing fraud requires shipment-level records, company information, production capabilities, rules-of-origin analysis and ultimately customs enforcement evidence.

But something much more robust emerges when we stop asking how much and start asking where: the White House map barely changes.

• Vietnam remains one of the clearest concentrations. Thailand, South Korea, India, Mexico, Malaysia and Türkiye remain prominent.

• More strikingly, jurisdictions identified by the White House account for about 93% of our much more conservative $18 billion estimate.

• 98.6% of our conservative signal falls in products actually hit by the U.S. tariff increase on China.

In other words, after trying quite hard to shrink the White House result, we managed to shrink the number enormously but we did not make the geography disappear.

The available trade data seem much better at telling us where potential rerouting is concentrated than at telling us exactly how much is being rerouted.

China is not incidental to the pattern because it is built into the test itself. We are looking specifically for products in which China loses direct U.S. market share while its exports of the same product to an intermediary rise and that intermediary simultaneously gains U.S. market share.

None of this proves a global transshipment scam but neither does the pattern disappear when subjected to much more sceptical assumptions.

Our conclusion is the White House headline number becomes much smaller but the map survives.