U.S. Designation of Transshipment Risk Countries for China and Korea's Response Challenges

Executive Summary

The 'Great Transshipment Scam' report released by the White House on August 13 classified more than 40 countries, including Korea, into risk groups based on the degree of supply chain integration with China, and specifically singled out the Gyeonggi semiconductor belt. This is not the detection of individual violations but a permanent surveillance system based on structural exposure, and it is an extension of the second Trump administration's stance of linking security and economics and demanding alliance cost-sharing. The possibility of Korea being completely removed from the list is low, and the response goal should be set at mitigating the risk-group rating and keeping the burden of individual verification at a manageable level. The possibility of a direct clash is limited, but practical friction may arise over the scope of origin data provision in the subsequent verification process. The government should simultaneously pursue upgrading verification infrastructure to meet CBP standards, establishing joint response channels with the semiconductor and battery industries, and preparing for linkage with tariff and defense cost-sharing negotiations.

I. Issue Situation Analysis

U.S. Designation of Transshipment Risk Countries for China and Korea's Response Challenges

1. Background and Development

The starting point of this issue is the 25-page report titled 'Great Transshipment Scam,' released by the White House Office of Trade and Manufacturing Policy (OTMP) on August 13 (local time)[1][7]. The report claims that a widespread practice is occurring in which Chinese-made products undergo only simple assembly, repackaging, or relabeling in third countries before their origin is laundered and they are exported to the United States[1]. The report classified target countries into three types based on economic scale and the degree of integration with Chinese supply chains[1]. More than 40 countries, including Korea, Japan, Taiwan, and the EU, as well as Mexico, Canada, India, Vietnam, and Singapore, were placed on the list[4][9].

This measure is an extension of the China-containment stance that the Trump administration's second term has maintained since immediately after taking office. EAI analysis has defined the core of the second Trump administration's foreign policy as "prioritizing containment of China above all else, and to this end, linking security and economics to demand that allies and friendly countries increase their share of responsibility and cost-sharing"[2]. This aligns with the trend in which Steve Miran, Chairman of the White House Council of Economic Advisers, has raised the argument that the United States cannot allow "free-riding," using tariffs simultaneously as a means of pressuring China and as a means of pressuring allies over cost-sharing[2]. On June 3, President Trump signed an executive order to "strengthen customs enforcement," and CBP stated that it granted customs authorities tools to enhance transparency and compliance across international supply chains[3].

2. Current Situation

Yonhap News Agency reported that this measure was described as leaving "dozens of economies, including Korea, Japan, Taiwan, and the EU, facing transshipment risks linked to Chinese goods," and reported that the United States has moved to respond to tariff evasion schemes[4]. JoongAng Ilbo, citing SCMP reporting, reported that the White House specifically singled out Korea's semiconductor industry hub[7]. This shows that the measure is being perceived not merely as a general discussion of origin laundering but as a measure targeting a specific industrial belt in Korea[7].

AP reported that the White House estimated annual tax revenue losses from such transshipment at $19 billion to $26 billion[15]. Channel News Asia noted that the White House pledged to use AI in the future to detect illicit practices[9]. Spain's ABC assessed that with this measure, the United States has opened a new trade front with the EU, a key ally[17]. Latin American media outlets, including the Dominican Republic's Diario Libre, Mexico's El Financiero, and Brazil's O Globo, all reported that their respective countries were included on the list[11][13][14], suggesting that this measure is an attempt to build a global surveillance network over the entirety of U.S. supply chains linked to China, rather than targeting any specific region.

At the same time, the United States is sending mixed signals to its allies. The Edge Malaysia reported that the United States has separately launched a program to expedite trade in AI-related items among close trading partners[18]. This shows that a dual-track strategy is being operated, in which preferential treatment is provided to trusted supply chain partners in parallel with the crackdown on transshipment.

3. Key Actors and Positions

The White House OTMP and CBP cite blocking tax revenue losses from tariff evasion and protecting U.S. manufacturing as their justification[1][3][15]. Their substantive goal lies less in origin laundering itself than in blocking China's entire circumvention export routes. The specific reference to Korea's semiconductor belt[7] shows that the United States has grasped the supply chain structures of individual industries in detail.

The Korean government and industry are keeping their official response low-key for now, but the semiconductor and electronic components industries are concerned about the increased burden of proving country of origin. EAI diagnoses that under the second Trump administration, the Korea-U.S. alliance has been placed under a structure of simultaneous pressure "in the two domains of economy and security"[2]; this transshipment measure can be seen as a case in which that pressure has moved from the trade domain into a concrete enforcement stage.

The EU appears to be interpreting this designation as a signal of cracks in the alliance relationship. ABC pointed out that this designation came right after the Spanish Prime Minister's visit to China and the expansion of cooperation with China, interpreting it as revealing an intent by the United States to control even its allies' approaches to China[17]. Mexico and Canada, despite being partners within the USMCA framework, were included on the list[13], confirming that U.S. surveillance applies regardless of whether an existing free trade agreement has been concluded.

China is in the paradoxical position of being the direct target of this measure while not appearing on the list itself. The U.S. measure focuses on blocking the third-country transit points through which Chinese goods are rerouted, rather than imposing additional tariffs on China itself, and can be seen as aiming to effectively narrow China's room for response.

4. Key Issues

The first issue is the ambiguity of the criteria for determining country of origin. No clear standard has yet been presented for where to draw the line between simple assembly, repackaging, or relabeling and substantial transformation processing[1][7]. For industries such as Korea's semiconductor sector, which import intermediate goods and subject them to high-value-added processing, whether regulations apply could vary greatly depending on this standard.

The second issue is the possibility of linkage with surveillance of supply chains related to North Korea. Given that the White House has stated it will upgrade its transshipment surveillance network using AI[9], it is difficult to rule out the possibility that the system for monitoring circumvention trade with China will be operated in an integrated manner with monitoring of North Korea sanctions implementation. In this case, Korea would face a dual burden of having to demonstrate not only management of trade with China but also the transparency of supply chains related to North Korea.

The third issue is the nature of the Korea-U.S. consultation channel. It remains unclear whether this designation will lead to immediate sanctions such as tariff imposition, or whether it will remain at the level of an administrative measure such as strengthened customs verification[3]. This uncertainty itself functions simultaneously as both negotiating leverage and risk for Korea.

The fourth issue is whether allies will pursue a joint response. With the EU, Japan, and Taiwan simultaneously placed on the list[4][9], a judgment is needed as to which path—individual bilateral negotiations or joint response among allies—would be more effective. The fact that the United States is simultaneously pursuing a preferential program for trusted partners[18] suggests the possibility that demonstrating compliance at the individual country level could lead to more immediate benefits than a joint response.

II. In-Depth Issue Analysis

U.S. Designation of Transshipment Risk Countries for China: Root Causes and Structural Context

1. Root Cause Analysis

The surface-level justification for this measure is the loss of tariff revenue. The White House estimated annual tax revenue losses from transshipment at $19 billion to $26 billion[15]. However, this figure alone is insufficient to explain the scale of a measure that simultaneously targets more than 40 countries.

A more fundamental cause lies in the structural loopholes in the tariff system on China itself since 2018. According to AP reporting, China rerouted its export pathways to various countries, from Mexico to Malaysia, in response to the 2018 tariff imposition[15]. Tariffs are based on rules of origin. Rules of origin are the product of bilateral negotiations between individual countries. There is no unified international standard. Transshipment has exploited this gap.

The second Trump administration has converted this structural loophole into a political opportunity. EAI analysis cites the logic of Steve Miran, Chairman of the White House Council of Economic Advisers: that the United States has provided security and economic public goods as a "benevolent hegemon"[2]. The perception is that the costs of this have been excessively passed on to the United States[2]. In this logic, the crackdown on transshipment is not mere customs administration. It is a means of blocking allies' "free-riding"[2].

The background to Korea's placement on the list should also be read in this context. JoongAng Ilbo reported that the White House specifically singled out the semiconductor belt in Gyeonggi Province[7]. This reflects U.S. suspicion about Korea's structure of intermediate goods exports to China, particularly the pathway in which Chinese materials and parts are re-exported through Korea within the semiconductor supply chain. The very fact that Korea's degree of trade integration with China is high has been interpreted as a risk signal.

2. Structural Context

Economic Structure: The Normalization of Tariff Evasion and Origin Laundering

The White House report classified target countries into three types based on economic scale and the degree of integration with Chinese supply chains[1]. This classification itself is telling. Rather than detecting individual violation cases, the United States chose an approach of pre-designating risk groups based on structural exposure. In other words, regardless of whether actual violations occur, countries with a high degree of supply chain integration with China become subject to permanent surveillance.

Korea's dependence on Chinese materials, parts, and maintenance-repair-operations (MRO) equipment is structurally high in core industries such as semiconductors, batteries, and displays. This structure will not change in the short term. EAI's U.S.-China Economic War series analysis points out that the United States has pursued import substitution for advanced products such as semiconductors, telecommunications equipment, rare earths, batteries, and pharmaceuticals since the Biden administration[8][10]. The transshipment crackdown of the second Trump administration is both an extension of this import substitution strategy and an expansion of the enforcement mechanism from tariffs to customs verification.

Political Structure: Security-Economy Linkage and Alliance Cost-Sharing

The EAI Global NK commentary defines the core of the second Trump administration's foreign policy as the "linkage of economy and security"[2]. Tariffs and defense cost-sharing are treated as "two sides of the same coin"[2]. The transshipment crackdown does not depart from this framework either. CBP Commissioner Rodney Scott stated that this executive order grants customs authorities "a comprehensive tool to protect American consumers, businesses, and revenue"[3]. On the surface, this is an economic measure, but in substance, it is an expansion of leverage for pressuring allies.

At the same time, the United States operates a dual track. The Edge Malaysia reported that the United States launched a separate program to expedite trade in AI-related items among close trading partners[18]. This approach of combining crackdown and preferential treatment is a structure that forces allies to make a choice. It is a signal that U.S. treatment varies depending on how much distance a country closes with the China supply chain.

Security Structure: Possible Linkage with North Korea's Circumvention Trade Network

While the explicit focus of this measure is China, the surveillance infrastructure itself has the potential to expand into circumvention trade networks in general, including North Korea. Plans to build an AI-based detection system support this[9]. Channel News Asia reported that the White House pledged to use artificial intelligence in the future to detect illicit transshipment practices[9]. As the surveillance network over transshipment involving China is upgraded, the routes for evading North Korea sanctions, which operate in a manner similar to origin laundering, could also come within the range of the same surveillance system. From Korea's perspective, this point carries dual implications. While there is an incentive to cooperate on the goal of controlling North Korea-related supply chains, there is also room for the same surveillance infrastructure to expand into permanent verification of Korea's overall trade with China.

3. Historical Precedents and Comparable Cases

The First Round of Learning: 2018-2019 Tariffs on China and Origin Circumvention

As AP pointed out, transshipment is a phenomenon that emerged from the first round of the U.S.-China trade war in 2018[15]. At the time, China relocated its final assembly processes to Southeast Asian countries such as Vietnam and Malaysia in order to evade tariffs. Through this experience, the United States learned that tariff imposition alone has limited effectiveness in pressuring China. This designation of transshipment risk countries and the introduction of an AI detection system are the institutional outcomes of this learning process. Policy instruments have evolved from simple tariff imposition to the construction of a supply chain tracking and verification system.

Differences Between Trump's First and Second Terms: From Unilateralism to Institutionalization

EAI's 2017 issue briefing defined the trade policy of Trump's first term as "bilateral negotiations and unilateral retaliation that maximally exploit the United States' asymmetric power relations, rather than a liberal approach grounded in multilateral institutions, norms, and rules"[12]. This characteristic continues into the second term, but the method has changed. While the first term centered on individual tariff impositions and negotiations, the second term is building a permanent surveillance system through institutional mechanisms such as report publications, executive orders, and AI detection systems[1][3][9]. This signifies a shift from one-off pressure to structural control.

The European Union Case: The Potential for Fissures Even Within the Alliance

Spain's ABC points out that behind the Trump administration's designation of the EU as a facilitator of transshipment involving China was Spanish Prime Minister Pedro Sánchez's visit to China and the conclusion of 19 economic cooperation agreements[17]. This shows how the United States uses individual member states' approaches to China as grounds for pressuring the EU as a whole. This is also instructive for Korea, in that cases of cooperation with China at the level of individual companies or local governments could be used as grounds for classifying the entire country into a risk group.

4. Key Variables in the Development of the Issue

The first variable is the specific content of the three-type classification criteria[1]. It is not yet clear which type the White House report placed Korea in, and what differentiated measures follow for each type. This is a matter that must be confirmed as a top priority in future Korea-U.S. consultations.

The second variable is the specificity of the semiconductor belt designation[7]. The fact that the White House went beyond a general discussion of origin laundering to mention a specific industrial hub in Korea leaves open the possibility that this measure could lead to future investigations at the individual company level or the re-imposition of tariffs.

The third variable is the actual timing and scope of when the AI detection system becomes operational[9]. Once this system is commercialized, the scope of surveillance could expand from transshipment involving China to circumvention trade involving North Korea. In this case, Korea would find itself in the dual position of being both a target of enforcement and a partner in cooperation.

The fourth variable is the balance of the U.S. dual track—that is, between enforcement and the preferential program[18]. Whether Korea is included in the expedited-clearance preferential program will serve as an indicator for gauging the actual degree of impact of this measure.