United States officials released a report on Thursday that places Canada among the principal routes used by China to evade American tariffs. The document, issued by the Office of Trade and Manufacturing Policy, describes the practice as "illegal transshipment", a form of smuggling that disguises itself as legitimate trade.
White House report on transshipment
The analysis, titled "The Great Transshipment Scam", says China ships products through a network of about 40 third‑party nations where tariff rates are lower. Once the goods reach a country such as Canada, they are relabelled, re‑invoiced and sent onward to the United States under paperwork that claims a lower origin duty.
According to the report, the scheme costs the United States between US$19 billion and US$26 billion in annual tax revenue. The calculation is based on an estimated US$75 billion of goods that are transshipped each year, a flow the authors say also displaces roughly 450 000 jobs and trims up to US$150 billion from the U.S. gross domestic product.
U.S. Customs and Border Protection is reportedly testing an artificial‑intelligence system, dubbed the "AI Detective Border", to flag suspicious manifests and certificates of origin. The report warns that countries that continue to reroute goods could face penalty tariffs, sanctions or loss of market access.
Implications for Canada
Canada's role in the alleged network stems from the Canada‑U.S.‑Mexico Agreement (CUSMA), which provides tariff‑free treatment for many goods moving across the three borders. The White House argues that Chinese exporters exploit this provision by first entering Canada, then crossing into the United States without incurring the 26 percent average duty that China faces.
Ottawa has 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 not yet responded to requests for comment on the new allegations.
For Canadian businesses that rely on the integrated North American supply chain, the report could prompt tighter customs scrutiny and additional paperwork. While the United States has not announced new tariffs against Canada, any escalation could affect sectors that depend on cross‑border logistics, such as warehousing, freight forwarding and distribution.
Negotiations to modernise CUSMA are ongoing, and the United States is also seeking to avoid a 50 percent tariff that is set to take effect next week on certain Canadian imports. How the two governments address the transshipment issue may shape the next round of trade talks and influence the regulatory environment for Canadian logistics firms.
The report arrives ahead of a planned September visit to Washington by President Xi Jinping, adding another layer of diplomatic tension to an already complex trade relationship.
Based on reporting by Global News.