Transshipment scam or efficient supply chain? How U.S. firms turn it into profit?

Account subscription benefits alongside Premium Stories, Editorials, Opinions and more. Unlock these with Subscription

The “Great Transshipment Scam”, an August 2026 White House report, accuses India’s Pune–Gujarat–Chennai production belt of pumps and compressors that export to the U.S. as being largely just pit stops in the movement of Chinese goods to America where no meaningful value addition is made. The report says China-linked exporters use jurisdictions like India for “both limited production activity and logistics-side routing”.

And the alleged scam lies in evading the high tariffs that the Trump administration levied on China in its first term by routing these pumps and compressors (HS Code 8413 and 8414) through India, which has led to a decline in pump and compressor manufacturing in Cincinnati, Dayton and Columbus. Pune-Gujarat-Chennai are the “ugly sister cities” that have replaced the industrial belts in the three U.S. cities mentioned before, as per the report.

An Indian pump draws a tariff of 10% while entering the U.S. One coming from China attracts 10% to 25-35% as per Section 301, which the Trump administration slapped on China in its first term for alleged IP theft, discriminatory business practices, forced technology transfer and so on. The report alleges that ever since Section 301 started applying to China, imports from China have dipped but imports from other countries such as India, Mexico and Vietnam have gone up at exactly the same rate and volume, which the U.S. government has interpreted as inference of a “transshipment scam.”

Parsing of figures and speaking to industry sources, however, reveals that there is little Chinese ownership of such pumps/components sent to the U.S. by Indian/India-based companies. Many are large U.S. multinationals with global production centers. They are typically listed in the New York Stock Exchange and follow sourcing strategies that give them cost and technology advantages. The profits of these American companies go to their shareholders or reinvested for growth.

Sourcing strategies are complex and navigate cheap raw materials and manufacturing, tariff differential and geopolitics to cut costs. For instance, an American pump company with a plant in India recently purchased two branded motors from Singapore under India’s Advance Authorisation scheme that allows duty-free import of raw materials and components needed to make products for export. This company exports its products across the globe, including the U.S.

An Indian pump manufacturing company in the small and medium-scale (SME) category exports pumpsets, including to the U.S. Since the parts for these pumps are not available in India, it imports them from China, paying Indian Customs Duty, potentially nullifying tariff differential.

And this is a global phenomenon. A reliable industry report that tracked HS Code 8413 imports to the U.S. from across the world barring leaders -- China, Taiwan and Italy -- shows that some 85% of the import value comes from Canada, which is not on the list of dubious nations in the White House report.