What is transshipment clause? The little-known rule in Trump’s trade war EXPLAINED as 50% US tariff kicks in tomorrow

US President Donald Trump’s additional 25% tariff on Indian goods come into effect on 27 August. However, attention is shifting to an obscure yet consequential element of Trump’s trade order — the “transshipment clause”. This provision, though technical in nature, could significantly shape how competitive India remains in the American market once the new 50% levies take effect, tomorrow, 27 August.

Why are US tariffs on Indian goods set to rise?

From 27 August, most Indian exports entering the United States will be subject to a 50% tariff, double the current 25% rate.

The Donald Trump administration has justified the hike as part of “aggressive economic leverage” against New Delhi’s continued imports of Russian oil, which Washington DC has labelled a “national security concern”.

What is the transshipment clause in US tariff policy?

In conventional trade terms, “transshipment” refers to goods being rerouted through a third country to disguise their true origin and evade higher duties. Donald Trump’s order expands this definition considerably.

Under this transshipment clause, any product that contains a significant proportion of inputs or value added from another country — especially China — could be penalised with an extra tariff.

In practice, this means that goods produced in Vietnam or Bangladesh using Chinese textiles, fabrics, or components might face tariffs as high as 40%, even if those countries enjoy lower baseline rates.

Why is US transshipment clause significant for India?

Even limited reliance on Chinese inputs could push shipments into the punitive 40% tariff slab. The risk is particularly acute in labour-intensive sectors such as garments and footwear, where China’s grip over fabrics, materials and components remains overwhelming.

This makes exporters in Bangladesh and Vietnam — already paying around 20% duties in the US — especially vulnerable, as a large share of their competitiveness stems from low-cost Chinese sourcing.

This offers a potential buffer for Indian exporters: while the higher duties will undoubtedly hurt, the relative competitiveness gap with regional rivals could narrow. In effect, the clause may blunt the impact of India’s tariff shock by eroding the advantage enjoyed by neighbouring economies.

How low could the threshold be?

US officials have hinted that the threshold for Chinese content could be set as low as 30%.

That would mean even modest reliance on Chinese inputs could trigger the punitive 40% tariff, particularly in industries such as garments or footwear where Chinese supply dominates, the expert explained in the Indian Express article.

Could the transshipment clause in US Tariff policy actually help India?

Paradoxically, yes — but only up to a point, says Akshay Sinha in the article titled How the ‘transshipment clause’ of US tariff policy could prove to be India’s saviour, published by Indian Express.

If India’s exports remain at or below a 40% tariff exposure, the damage could be partially cushioned because competitors face similar or higher rates. But if the White House proceeds with the 50% tariff linked to Russian oil purchases, India would once again be at a clear disadvantage, offsetting any benefit from the transshipment rule.

What does this mean for New Delhi?

For now, India faces a precarious balancing act. On one hand, the transshipment clause could turn into a hidden advantage against regional rivals.

On the other, the looming 50% tariff risks overwhelming that benefit altogether. Policymakers in New Delhi may soon need to weigh the costs of retaliation — not just to protect exporters, but also to preserve leverage in what has become an increasingly politicised trade war.