If clauses involving illegal transshipment in the Trump administration’s latest tranche of trade agreements with Cambodia, Malaysia, Thailand and Vietnam haven’t signposted the U.S. government’s doubling down on what officials have characterized as the “laundering” of goods from countries with higher tariffs—say, China—to those with lower ones, the Department of Homeland Security’s latest move should blow all remaining ambiguity away.
It was just a week ago that Exiger, an AI-powered supply chain management technology platform, announced that been awarded an exclusive, multi-million-dollar and first-of-its-kind contract by Customs and Border Protection. It was almost as if the White House had heard the cacophony of trade and labor experts casting doubt over its ability to police supply chains that are, by nature and design, equal parts byzantine and opaque.
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But AI can help cut through all that noise, said Kit Conklin, senior vice president of risk and compliance at Exiger. The company’s experience with risk mapping for the Department of Defense and corporate clients, he said, has stood it in good stead, creating a “very, very large set of data” that it’s been able to leverage for other purposes, including flagging instances of potential transshipment through a combination of proprietary machine-learning models and trade intelligence data.
“I think it’s reflective of where the administration is on trade enforcement right now, which is legal trade and the detection of illicit drugs such as fentanyl,” he said of the agreement.
Indirect shipments, in and of themselves, aren’t a bad thing. Cargo is frequently conducted this way, moving from one port of call to another via air, land or sea before ending up at its final destination with all the proper documentation. Unlawful transshipment, with the intent to mask a product’s true country of origin, on the other hand, has thwarted efforts at collecting accurate customs duties and identifying forced labor-tainted products, particularly from China’s Xinjiang Uyghur Autonomous Region, where the persecution of ethnic minorities led to a stateside crackdown on goods from the region through the Uyghur Forced Labor Prevention Act.
It’s the former rather than the latter issue that President Donald Trump appears more concerned about. In August, after blaming the maneuver for part of the $1.2 trillion U.S. trade deficit, the commander in chief slapped an additional 40 percent tariff on any product that officials determined to be transshipped through a third country. While China wasn’t explicitly mentioned as a target, the rule took a well-aimed shot at the possible circumvention of what was, at the time, an especially punishing 57 percent tariff meant to subvert its manufacturing dominance.
How this will be accomplished aside—many countries are still missing the so-called “rules of origin” that lay out what the United States considers transshipped—these are, nevertheless, “huge, huge margins” that are being talked about, Conklin said.
“So if you have to pay a 40 percent tariff versus a 15 percent tariff, there’s an incentive for you to figure out a way to do that in global supply chains, right?” he said. “CBP is looking to ensure that revenue integrity because every time a good comes into the United States from, you know, Malaysia, but it’s actually just a product made fully in China that doesn’t go through any significant transformation at all outside of it, then the taxpayer is losing 25 percent of the duty on that good. And that’s a real problem.”
Malaysia, Thailand and Vietnam also happen to be major transshipment hubs for made in whole or in part in Xinjiang, according to CBP’s UFLPA tracker. Since 2022, customs officials have rejected shipments amounting to $240 million from Malaysia, $260 million from Thailand and $120 million from Vietnam, or quadruple the $150 million from China itself. Chinese solar manufacturers have also been caught illegally routing their products through Cambodia. Though Exiger’s contract was signed in September, a month before the trade deals coalesced, Conklin said, it’s unlikely that a broader strategy wasn’t already at play. Roughly $10 billion of trade moves through illegal transshipment channels every year, and even that is a conservative estimate, he said.
“Because we’re the only capability that exists, as far as I know, anywhere to do this,” Conklin said. “The administration is now able to have transshipment intelligence and the ability to enforce this type of regulation and this type of bilateral agreement in a way that it didn’t otherwise have. And what the AI enables, from a policy perspective, is for more bilateral trade deals or multilateral trade deals to include things like illegal transshipment in there because there is now a way to verify and catch that activity.”
That CBP’s capacity to scale enforcement of transshipment workarounds could result in greater tariff revenues, making whatever investments pay for themselves, is likely a big driver of the Department of Homeland Security’s investments, too, perhaps even more so than with forced labor, although UFLPA enforcement will also benefit from the increased visibility.
At the same time, the rules of origin in the Southeast Asian pacts are still hazy at best, with no firm commitments from either side. (Malaysia’s agreement, for example, says without elaboration that it “shall enter into a duty evasion cooperation agreement with the United States.”) Such rules typically take years of negotiation before they’re decided upon, making the playbook something that’s still to be written.
But companies that are still waiting and seeing might want to get a move on because any liabilities that come will come quickly, Conklin said. Future transshipment rules, for instance, could ding individual components that are made in one country—China, again, is a good bet—and then integrated into a product without enough of a transformation in another before winding up in the United States. As game-changing as this could be for large importers, small to medium-sized brands that haven’t looked at their supply chains too closely could take a drubbing.
“Take the materials for a shoe that’s made in Vietnam,” he said. “Maybe the rubber and leather and all that stuff is assembled in Vietnam and meets that definition of assembly. But if all of those components come from China and that transshipment rule comes into effect, that means that the importer will have to pay the China rate, not the Vietnamese rate. That’s going to fundamentally change the retail supply chain landscape.”
Efforts at improving enforcement won’t be easing any time soon, either. CBP said that it’ll be evaluating other commercially available private sector solutions geared toward automated tariff classification, value and country-of-origin validation and supply chain tracing that can improve visibility and risk segmentation before shipments arrive in the United States.
“As part of the commercial solutions opening pilot program, CBP is exploring how cutting-edge technology solutions already in use by the private sector can be leveraged by CBP to enhance trade operations, promote cargo security and compliance, and secure tariff revenue,” a spokesperson said.
Conklin doesn’t think there has been much in the way of C-suite conversation on “how real” that type of policy change could be, even though there’s been a lot of “diplomatic punting” so far. And when the final rules of origin are fixed, he said, there will be “a lot more teeth” to those agreements beyond their sometimes nebulous direction.
“This is different than the UFLPA. It’s different than CSDDD or EUDR or the upcoming EU forced labor regulation,” Conklin said, using acronyms for the corporate sustainability due diligence directive and the EU deforestation directive. “And what makes it different is how you’re identifying risk within a supply chain. It’s not just about mapping corporate ownership. It’s not just about mapping supply chain ownership. It’s about the product and component level. There’s going to be a huge uptick in enforcement and brands really need to be focused on that component or part-level due diligence for supply chain mapping in a way that most of them haven’t thought about.”
