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. Mexico comes next with more than 11% while India comes third contributing a little over 2% and Brazil and Vietnam are fourth and fifth with much less than 1%. Out of the top 50 suppliers, 16 are U.S. firms, among the most well-known OEMs of pumps. Six are German-owned and they too are bluechip firms. Four are Japanese, 3 South Korean and 1 each Swiss, UK, Chinese, Hong Kong and so on.
There are five Indian firms in the top 50. Two are Mexican.
The industry report puts the total value of Indian pump exports to the U.S. at some Rs. 4,000 crore. Industry sources say only a fraction of this comes from Indian companies.
Call for Indian government action
While the White House report attempts to locate holes in the global manufacturing maze and brands them as “shadow” operations whose only motive is tariff evasion, it also makes Indian MSME manufacturers vulnerable to damaging action by the U.S. government. Their factories have been around for years and have collaborated with international partners for technology so they could meet American standards to cater to that market.
“The US already applies strict non-preferential origin rules based on substantial transformation. Yet the report says these rules remain complex, inconsistent and open to misuse, and calls for tougher statutory standards. This could increase uncertainty and compliance costs for legitimate manufacturers using imported inputs without necessarily improving the detection of deliberate customs fraud,” says Ajay Srivastava of Global Trade Research Initiative.
“Pumps sold in the U.S. market should meet mandatory standards and norms and we spent years to design pumpsets to meet these requirements. We cannot sell these pumpsets in other countries as they are designed specifically for the US. The design and voltage are different for the American buildings or agriculture market. India is competitive to China in forgings and castings and Indian companies will not pay Customs duties to import these from China and assemble the pumps here to supply to the US as this is not an economically viable option,” says an Indian pump exporter who didn’t wish to be identified.
A loophole
Industry sources also point out the possibilities of some companies in India doing third country invoicing and shipping directly from China to the U.S. This too is a long established practice in global trade. The White House report, however, specifically talks about goods landing in India and leaving without significant value addition. The report talks about a 90-day dwell-time threshold. If a product sits in a facility for less than 90 days before re-export, then it was possibly just passing through than undergoing substantial transformation.
The report uses an industry tool that is apparently capable of isolating and analyzing product composition, manufacturer facility capabilities, and the manufacturing processes. Its model factors in HTS codes, shipment data, satellite imagery, parts, equipment, and components to specifically test claims of “substantial transformation” — i.e., whether a claimed country of origin actually did enough real manufacturing to earn that designation, or whether it’s just a paperwork relabel. An AI-based tool will be deployed to detect such “transshipment,” the report promises.
Published – August 23, 2026 08:10 am IST
