White House Says Canada One of Top Enablers of China ‘Transshipment Scam’ to Get Around US Tariffs

A gantry crane operator removes a container from a cargo ship while docked at port in Vancouver on July 16, 2024. The Canadian Press/Darryl Dyck

Canada is one of the “biggest enablers” of China bypassing U.S. tariffs via transshipping, according to a new White House report.

The report, entitled “The Great Transshipment Scam,” says that Chinese companies have increased the practice of exporting via third countries where they relabel and repackage goods before exporting them onward to the United States, listing a different country of origin.

Washington says the practice is “smuggling disguised as trade—fraud cloaked in paperwork,” and names Canada as one of the top countries enabling the practice.

“For years the great transshipment scam has led communist China to launder its exports to more than 40 countries, rob our treasury of tens of billions of dollars, and steal the paychecks of American workers,” Peter Navarro, an assistant to U.S. President Donald Trump and senior counselor for trade and manufacturing, said on Aug. 13.

“This report rips the mask off.”

Ottawa hasn’t yet commented on the report.

The report says Chinese goods that would otherwise face steep duties after being imported to the United States are often sent through Canada or Mexico and listed as qualifying for tariff-free trade under the provisions of the Canada–U.S.–Mexico Agreement (CUSMA).

“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,” reads the report, which refers to more than 40 countries as having a high risk of being involved in China’s “Shadow Transshipment Network.”

While the report focuses heavily on the transshipment of Chinese-origin goods, it cites broader estimates of potential transshipment and related rerouted trade ranging from roughly US$40 billion–$303 billion annually.

It estimates that transshipment leads to roughly 450,000 American jobs being lost or shifted out of the U.S. economy due to domestic production being replaced by imports, and further states that the practice may lessen annual U.S. GDP by US$113 billion–$150 billion as well as costing Washington up to US$26 billion in lost revenue.

High-Risk Nations

Canada is listed as one of the highest risk nations referred to as “Diversified Scale Leaders” with major trade flows linked to China where transshipped goods can be hidden inside legal trade. They also include Mexico, the European Union, India, Israel, Japan, South Korea, and Taiwan.

In addition to this, the report classifies Canada as having “Developed Logistics Platforms,” referring to its port system, customs, and infrastructure including bonded warehouses where goods can be stored without paying taxes or customs charges right away. Belgium, the Netherlands, Singapore, Switzerland, and Turkey are also listed in this category.

Although the report says that transshipment is “nothing new,” it states that there has been an increase in the “breadth, depth, and sophistication” of the network used to move Chinese goods through third countries, including Canada.

2018 Tariffs Led

The report says that transshipment surged as a result of Trump putting in place Section 301 tariffs on China in 2018, which covered hundreds of billions of dollars’ worth of Chinese imports due to allegations that China was engaging in unfair trade practices.

The report also states that despite China representing a falling share of imports into the United States and the rising share of imports from countries identified as being at a high-risk of transshipment, this does not definitively prove the practice is taking place, as some of the shift may be due to changes in supply chains, manufacturing, and investment.

However, the report says that available evidence indicates there is ongoing and substantial evasion of U.S. tariffs.

Enforcement

The Trump administration has also put in place measures for greater enforcement against transshipping. An executive order signed two months ago by Trump boosts U.S. customs enforcement, and an artificial intelligence-powered program called “Detective Border” is being developed for U.S. Customs and Border Protection to more readily crack down on suspected transshipping.

“The objective is clear: every bill of lading, shipping manifest, and certificate of origin should pass through an AI-driven net that never sleeps, never tires, and never forgets,” the report says.

It warns that countries that take part in tariff evasion will face strict consequences, including “immediate interdiction, penalty tariffs, sanctions, and potential loss of market access.”

Canada’s Response

Prime Minister Mark Carney has not responded to the specific allegations contained in the Aug. 13 report.

However, the Carney government has previously brought up concerns about unfair Chinese trade practices and trade diversion, with Carney announcing measures in July of last year to stop “harmful trade diversion” impacting Canada’s steel sector.

These measures included tariffs on products that Carney said were imported from third countries containing steel that had been melted and poured in China. This was followed by the government putting in place stronger border enforcement measures against foreign steel dumping and fraudulent customs declarations.

Ottawa has also brought up concerns in the past about Chinese companies using North American production, particularly Chinese-made automobiles and automobile parts assembled in Mexico, as a way to get low-barrier access to the U.S. and Canadian markets.

The new report comes as Canada, the United States, and Mexico continue trade negotiations on sectoral tariffs as well as the future of CUSMA.

The Trump administration declined to renew the agreement last month, meaning the agreement continues on a rolling annual basis rather than being renewed to a full 16-year term. It said that negotiations with Canada and Mexico will continue due to issues with the agreement and a U.S. trade deficit with both nations.

Particular concerns raised by the Trump administration regarding Canada included Canada’s tariff-rate quota system in the dairy industry, restrictions on American agricultural exports and investment, as well as ongoing concerns regarding rules of origin and inadequate measures to prevent Chinese and other non-market goods from using CUSMA to get preferential access to the U.S. market.

In the past, Carney has repeatedly pointed to Canada’s continuing tariff-free access for many goods shipped to the United States under CUSMA as a positive aspect of the Canada–U.S. economic relationship, stating that about 85 percent of Canada–U.S. trade remains tariff-free.

Canada’s exports to the United States rose 0.2 percentage points in June compared to May at roughly CA$53.9 billion worth of goods, the fifth monthly increase in a row, according to Statistics Canada.

The agency noted that 71.7 percent of all Canada’s merchandise exports last year went to the United States, a decline from 75.9 percent in 2024.

Emel Akan contributed to this report.