IN G.K. CHESTERTON’S parable of the fence, those eager to tear down seemingly useless structures are urged to understand why they were built in the first place. Chesterton’s fence has long been received wisdom among American conservatives of a certain age, but Peter Navarro, Donald Trump’s chief trade ideologue, seems to have missed the memo. Absurd as this claim is, the paper is nevertheless a vivid exposition of the Trump administration’s muddled thinking on trade.
In a new paper published by Mr Navarro’s office in the White House, titled “The Great Transshipment Scam”, dozens of countries from Japan to Jordan stand accused of abetting a Chinese plot to dodge American tariffs.
The average tariff-rate differential between China and the rest of the world widened from 0.9 percentage points at the start of 2018 to 29 points last year (see chart). The predictable happened: the share of American imports coming from China tumbled from 21% to 9%, while that from other countries soared. Mr Trump’s Trade Fraud Task Force claims to have recovered $1bn from tariff dodgers since launching last year.
Mr Trump charged ahead anyway. Messrs Trump and Navarro now face a problem of their own making. Undoubtedly, some proportion is customs fraud, which America is within its rights to clamp down on.
In “connector” economies such as Vietnam, Malaysia and Mexico, imports from China and exports to America rose in tandem. Even Mr Navarro offers a cursory nod to the difference between “legitimate manufacturing and substantial transformation” on the one hand and “pass-through trade and origin shifting” on the other. Indeed, he collates five private- and public-sector estimates of “illegal transshipment flows”, amounting to as much as $303bn—an improbable 56% of America’s imports from China in 2018—each year. Yet even the most convincing of these, a Goldman Sachs analysis finding that $40bn-worth of Chinese goods were “superficially re-exported” to America in 2023, does not claim that the flows are illegal.
This is, more or less, the entire infrastructure of global trade; policing it would require a panopticon. Still, Mr Navarro is willing to try. After all this, you may wonder whether Mr Navarro thinks imports to America should contain any Chinese content at all. If so, how much? An extreme (though coherent) answer would be to set a maximum threshold for Chinese content, and ban or tax all imports that breach it. Still, Mr Navarro’s extraordinary paper has performed a service. It is yet another illustration of the mess his boss’s attack on the global trading order has created.
Mr Trump’s 40% transshipment tariffs could then be used to strong-arm countries whose exports contain too much from China. Because doing so would drive up prices for an American public already enraged about the cost of living, that has not come to pass, presumably.
Mr Navarro’s paper describes the “functional architecture” of the “shadow transshipment network” that stretches across 43 countries, making up over 70% of America’s non-Chinese imports. From assembly hubs in South-East Asia to logistics centres in the United Arab Emirates and Canada, the supposed scam snakes through “production-side transformation claims, logistics-side routing channels, processing zones, maritime gateways, overland corridors, bonded warehouses and re-invoicing systems”. He vaguely threatens setting up an AI-enabled “detective border” system.
