The new 40% transshipment penalty has no mitigation or remission, so a single routing mistake by a freight forwarder can destroy an importer's margins permanently

Executive Order 14326, effective August 2025, introduced a 40% additional ad valorem duty on any article CBP determines was transshipped to evade tariffs. Unlike virtually every other customs penalty, this one has no option for mitigation or remission — it is absolute. If CBP determines transshipment occurred, the 40% penalty applies regardless of intent, and there is no administrative process to reduce it. This matters because transshipment determinations are based on CBP's judgment of whether goods were routed through a third country to avoid higher tariffs on the country of manufacture. An importer who sources aluminum parts manufactured in China, processed in Vietnam (adding legitimate value), and shipped to the U.S. faces the risk that CBP will determine the Vietnamese processing was insufficient to change the country of origin — and impose a 40% penalty on top of whatever China tariffs already apply. The importer might believe in good faith that the Vietnamese processing constitutes substantial transformation, but CBP can disagree, and there is no mitigation. On a $500,000 shipment, that is an instant $200,000 penalty with no appeal path short of litigation at the Court of International Trade. The DOJ and DHS launched the Trade Fraud Task Force in August 2025 specifically to pursue tariff evasion and transshipment cases. CBP awarded contracts to AI companies to detect transshipment patterns using supply-chain-mapping technology. Vietnam, Malaysia, Cambodia, Thailand, and Indonesia are flagged as high-risk transshipment countries. The executive order directed CBP to publish a bi-annual list of countries and facilities used in circumvention schemes, though as of early 2026, this list is still pending — meaning importers cannot even check whether their suppliers or routes are flagged. This problem persists because the line between legitimate supply chain optimization and illegal transshipment is genuinely ambiguous. The "substantial transformation" test — whether processing in the third country fundamentally changes the character of the goods — is a subjective, case-by-case determination with decades of contradictory rulings. Importers who restructured supply chains away from China in response to Section 301 tariffs are now being scrutinized for whether those supply chain moves were "real" or mere transshipment. The penalty structure — 40% with no mitigation — treats a freight forwarder's routing error the same as deliberate fraud.