United States officials released a report on Thursday that labels Canada as one of the largest enablers of Chinese goods that bypass US tariff rules through a practice the agency calls illegal transshipment. The analysis, produced by the Office of Trade and Manufacturing Policy, estimates the scheme costs the US Treasury between US$19 billion and US$26 billion each year.
The transshipment claim
The document, titled "The Great Transshipment Scam", describes a network of roughly 40 countries that receive Chinese exports, re‑label them and forward the cargo to the United States under more favourable duty rates. The report says the network includes nations that sit on major supply chains, naming Mexico, the European Union, India, Japan, South Korea and, notably, Canada.
According to the analysis, China faces an average tariff of more than 26 percent on US‑bound goods, a rate that remains the highest among all trading partners. By routing shipments through Canada or Mexico, Chinese exporters can claim the tariff‑free status granted under the Canada US Mexico Agreement (CUSMA), allowing the goods to enter the United States without additional duties.
The United States estimates that about US$75 billion of Chinese‑linked merchandise is transshipped each year. The report links that volume to the loss of up to 450 000 jobs and a reduction of US$150 billion in annual GDP.
Implications for Canada
Canadian officials have previously voiced concern about similar practices, especially in the automotive sector where Chinese firms have sought to establish production in Mexico. International Trade Minister Maninder Sidhu has been briefed on the US findings, though his office has not yet issued a formal response.
For Canadian businesses that rely on supply‑chain integrity, the allegations could trigger tighter customs scrutiny. US Customs and Border Protection is reportedly testing an artificial‑intelligence programme, dubbed the "AI Detective Border", to flag suspicious documentation and routing patterns.
If the United States moves to impose penalty duties or sanctions on entities deemed to facilitate transshipment, Canadian firms that handle logistics, warehousing or re‑export services could face new compliance burdens. The timing coincides with ongoing negotiations between Canada and the United States aimed at lowering sectoral tariffs and avoiding a looming 50 percent duty that is set to take effect next week.
Analysts note that while the report paints a broad picture, concrete enforcement actions have yet to materialise. Canadian policymakers will need to balance the desire to protect domestic industries with the risk of disrupting legitimate trade flows that underpin the North American market.
Based on reporting by Global News.