Key Points

• A White House report pegs tariff-evading transshipment at least $34.2 billion annually and names several countries as primary conduits for Chinese goods entering the U.S. under false origin claims.
• Customs and Border Protection is deploying an AI-powered enforcement system that cross-references origin declarations, routing data, and component sourcing to flag evasion at scale.
• Companies should review country-of-origin determinations, supplier documentation, and AD/CVD exposure now, before CBP investigations and algorithmic customs scrutiny reach their shipments.

An August 2026 report from the White House Office of Trade and Manufacturing Policy titled "The Great Transshipment Scam" lays out a new enforcement playbook that pairs tougher penalties with an AI-powered detection system the administration calls "Detective Border."

The report argues that tariff evasion through third countries has become a large-scale problem and calls for substantially stronger enforcement. It estimates that at least $34.2 billion in goods may be transshipped annually to avoid U.S. tariffs. For companies with supply chains that touch China and run through countries like Mexico, Vietnam or Malaysia, the signal is clear: Customs and Border Protection is building the tools to scrutinize origin claims at a scale and speed that manual review never could.

Here's what businesses need to know:

Defining ‘Transshipment’

The White House report uses the term “transshipment” broadly to describe the movement of goods from a higher-tariff country, such as China, through a third country in which only minimal processing takes place so that the goods can enter the United States under the third country’s tariff treatment and origin designation.

The report focuses particularly on Chinese goods routed through countries such as Mexico, Vietnam and Malaysia after limited processing or assembly in the third country. Its concern is not legitimate supply chain diversification but activity that improperly changes or disguises a product’s origin to avoid duties.

The report identifies several problems:

• Tariff rate differentials that create incentives to reroute goods
• Supply chains in which Chinese components or production remain embedded despite a different declared origin
• Difficulty of detecting those arrangements at the scale of modern global commerce.

The administration’s response is to combine tougher rules, more data, stronger penalties, and greater scrutiny of the countries and companies serving as conduits.

The report places countries into three tiers based generally on the scale and sophistication of their transshipment exposure.

Tier 1 includes major trading partners and large, sophisticated supply-chain hubs (called “Diversified Scale Leaders”; e.g., Mexico, the European Union, Japan, South Korea, and Taiwan).

Tier 2 encompasses significant regional manufacturing and logistics platforms with deep China-linked supply chains (“Scale Leaders with Significant Economic Integration with China”; e.g., Malaysia, Brazil, and Vietnam).

Tier 3 covers lower-volume or emerging conduits (“Small Opportunistic Chinese Targets”; e.g., Switzerland, Jordan, Cambodia, and Bangladesh).

The key point for companies is that the administration is looking beyond China itself and increasingly at the entire supply chain through which goods reach the United States.

Spotlight on CBP Tools

The report specifically highlights CBP’s use of the Enforce and Protect Act (EAPA). EAPA gives CBP authority to investigate allegations that importers are evading antidumping and countervailing duties (AD/CVD) orders, including through transshipment.

President Trump’s June 3, 2026 Executive Order on strengthening customs enforcement emphasizes CBP’s enforcement authorities. The order expressly directs the Department of Homeland Security and the Attorney General to prioritize enforcement involving illegal transshipment, including EAPA investigations, while also calling for stronger penalties, tighter bonding requirements, and enhanced importer-of-record information.

Meet ‘Detective Border’

Perhaps the most consequential development in the report is the administration’s emerging Detective Border system. As described in the report, CBP is developing an AI-enabled system capable of analyzing global trade data and comparing declared origins, routing histories and component content against expected patterns.

The report says such algorithms can identify inconsistencies that would be difficult for humans to detect at scale. This tool is consistent with the President’s June Executive Order, which, while not using the name “Detective Border,” requires more importer data and overall stronger enforcement. For importers, this means that a country-of-origin determination may increasingly be tested against the entire digital footprint of a transaction, and companies should be prepared to provide additional explanation on where materials came from.

Broader Implications

The White House estimates that transshipment costs the United States tens of billions of dollars in tariff revenue and contributes to lost economic output. But the larger message for businesses is clear: tariff enforcement is becoming more data-driven, more comprehensive, and less dependent on what CBP can identify through traditional review.

Fox Rothschild is closely monitoring these developments and is prepared to help companies stay ahead of them. Our International Trade team can help companies assess country-of-origin and tariff exposure before enforcement questions arise. We advise companies on origin determinations and customs compliance, represent clients in AD/CVD proceedings, and helps companies respond to CBP enforcement activity.

For more information, please contact Mark G. Eskenazi at 202.461.3109 or meskenazi@foxrothschild.com, or Lizbeth R. Levinson at 202.794.1182 or llevinson@foxrothschild.com.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the authors and not necessarily this law firm or its clients.