President Donald Trump has a penchant for keeping international trade and tariffs perpetually in turmoil. The latest salvo in the tariff saga is a recently released White House report titled “The Great Transshipment Scam”. This report and a slew of tariff related actions in the US during the past few weeks call into question the possibility of India securing a predictable and stable tariff regime for its exports to that country. This also has implications for the ongoing negotiations for a bilateral trade agreement.
According to the report, the US “faces a growing challenge from the illegal transshipment of goods through third countries to evade applicable tariffs and other trade remedies”. Further, “illegal transshipment may involve relabelling, repackaging, re-invoicing, minor processing, false country-of-origin claims, or other actions intended to secure tariff treatment that would not apply if the goods’ true economic origin were declared”.
It mentions that more than 40 countries are associated with “elevated illegal transshipment risk”, especially those “closely integrated into China-linked production and supply networks”. The report identifies India as one of the countries that accounts for “large absolute volumes of China-linked goods while maintaining diversified industrial bases and major US-bound export platforms”.
As a solution to the so-called scam, the report envisions every bill of lading, shipping manifest, and certificate of origin passing through an AI-enabled “Detective Border”. It has proposed that countries that relabel or reroute tariffed goods to evade US law should face immediate interdiction, penalty tariffs, sanctions, and potential loss of market access.
In normal circumstances, the report might not have raised an eyebrow. However, given the history of President Trump’s actions on trade during his second term, countries could be arbitrarily declared to be involved in illegal trans-shipment and slapped with high penalty tariffs. Further, countries could be punished for sourcing inputs from China and exporting the final product to the US despite being manufactured with substantial domestic value-addition in the exporting country. In short, the US is likely to leverage “illegal transshipment” for extracting concessions from its trading partners.
The report should not be seen in isolation, but as part of a slew of recent measures by the US which would exacerbate prevailing uncertainty and diminish predictability in international trade.
Pursuant to an investigation under its domestic statute, commonly referred to as the Section 301 investigation, the US imposed a tariff of 10% on India’s exports on July 24. This is ostensibly aimed at encouraging India to strengthen restrictions on imports produced using forced labour. The US administration is likely to announce the findings of another ongoing Section 301 investigation of excess manufacturing capacity. This could result in additional tariffs on a wide range of industrial products exported from India.
Recently, Trump announced that generic drugs imported into the US will face a 100% tariff with effect from August 2028, which will be raised to 200% a year later. In another development, the US Senate approved a Bill that would authorise the US president to impose tariffs of up to 100% on imports from certain countries, including India, which purchase large volumes of Russian crude oil or natural gas. If the Bill gets approved by the House of Representatives and secures presidential assent, it would add another layer of uncertainty around the tariffs applicable to India’s exports to the US. As with Section 301 tariffs, the Russian oil penalty would be illegal under WTO rules.
The aforementioned developments should make it clear that predictability in the US trade regime and certainty in tariffs is a mirage. Then where do these developments leave India in the negotiations for a bilateral trade agreement? In the past few weeks, media reports have quoted senior functionaries in the department of commerce stating that India remains committed to the framework for the interim trade deal, which was finalised earlier in February. However, this would be conditional on India securing a tariff advantage in the US over its competitors. In the constantly changing tariff landscape in the US, attaining this objective appears extremely unlikely. Even if the US agrees to providing a tariff advantage, Trump’s past actions do not inspire confidence that he would subsequently abide by such a commitment.
In the unfolding uncertain tariff and trade scenario, India needs to review its bilateral trade strategy with the US. It should reflect on what the country has gained from the numerous policy changes made since February 2025, which addressed some of the grievances of the US, explicitly mentioned in that country’s yearly National Trade Estimates. These include lowering customs duties on motorcycles, bourbon, some pharmaceutical products, Ethernet Switches, etc.; enhancing market access for US agricultural products, including alfalfa hay and medical devices; easing import restrictions on certain information and communications technology products; allowing inventory-based e-commerce for exports; eliminating the equalisation levy on foreign online advertising platforms; and easing certain governance conditions applicable to Indian insurance companies with foreign investment.
India should think hard about the reputational damage suffered and negotiating leverage lost by its silence at the WTO on the US’s illegal trade actions. It must also consider implementing retaliatory tariffs against the US, as it had done during Trump’s first term. Continuing with negotiations for a trade deal as the US keeps raising the odds against India is not serving our country’s interest. Even at this late stage, the government must recognise this harsh reality and change course.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.