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A new White House trade report says the Trump administration considers Canada among China’s “biggest enablers” in avoiding U.S. tariffs through transshipment, a “modern form of smuggling” that the U.S. claims is costing billions in lost tax revenue.
The report released Thursday from the Office of Trade and Manufacturing Policy — titled “The Great Transshipment Scam” and featuring a timely image of a Trojan horse on the front page — accuses China of routing their exports through third countries with more favourable U.S. tariff rates.
An estimated 40 countries, including Canada, comprise a “shadow transshipment network” used by China, the report argues.
“In plain terms, illegal transshipment is smuggling disguised as trade — fraud cloaked in paperwork — and, in truth, nothing new,” the report says, adding what has changed is the “breadth, depth, and sophistication” of China’s network.
“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.”
All those trading partners, as well as Israel and Taiwan, are included in a group that the report calls “Diversified Scale Leaders,” defined as “countries and trading blocs that account for large absolute volumes of China-linked goods while maintaining diversified industrial bases and major U.S.-bound export platforms.”
“In these jurisdictions, illegal transshipment risk is embedded within broad legitimate trade flows,” it alleges.
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It also lists Canada among nations the U.S. says serve as “logistics-side nodes where the principal activity is not manufacturing but routing, consolidation, warehousing, documentation changes, re-invoicing, relabeling, or re-export under new paperwork.”
China currently faces an average U.S. tariff rate of more than 26 per cent, according to the Yale Budget Lab. While that’s far below the 145 per cent rate reached last year, it remains the highest of any other country or trading bloc.
Thursday’s report argues China can take advantage of tariff-free provisions under the Canada-U.S. Mexico Agreement on free trade (CUSMA) by sending their exports into Canada or Mexico, which are then shipped into the U.S. at no extra cost.
Canada itself has raised these same concerns in the past dating back to the Biden administration, particularly when it came to Chinese attempts to expand its auto production industry into Mexico.
Global News has reached out to International Trade Minister Maninder Sidhu’s office for comment on the White House report’s allegations.
The report estimates the U.S. is losing federal tax revenues of US$19 billion to US$26 billion annually as a result of Chinese transshipment.
That estimate is based on a central figure of $75 billion worth of goods being transshipped per year, which the report claims also results in 450,000 displaced jobs and up to US$150 billion in reduced annual GDP.
The report comes ahead of a planned September visit to Washington by Chinese President Xi Jinping, following U.S. President Donald Trump’s own trip to Beijing in May.
It also comes amid increased trade negotiations between Canada and the U.S. aimed at reducing sectoral tariffs; avoiding a new 50 per cent tariff due to take effect next Wednesday; and renewing CUSMA, which the U.S. declined to do at last month’s scheduled review.
The report says U.S. Customs and Border Protection has started to use artificial intelligence in a prototype program to stop transshipments, dubbed “the AI Detective Border.”
“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.
“Countries that relabel or reroute tariffed goods to evade U.S. law should face immediate interdiction, penalty tariffs, sanctions, and potential loss of market access. … Those who continue will be caught. Those who cooperate will be treated as partners in restoring a fair and honest trading system.”
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