The Coupled Ocean–Atmosphere–Wave–Sediment Transport (COAWST) modeling system was used to explore lateral circulation and associated sediment transport in a convergent estuary with existence of channel and shoals. The lateral momentum balance was found to be largely geostrophic with a barotropic pressure gradient balanced by a baroclinic pressure gradient and Coriolis forcing during most time of a tidal cycle, except at the maximum ebb/flood. At the east side (right side looking landward), due to estuarine convergence, barotropic forcing strongly modulates lateral momentum balance and generates eastward residual sediment transport during spring tides. But during neap tides, the enhanced lateral density gradient induces strong lateral baroclinic forcing to cause westward residual sediment flux. At the west side, baroclinic forcing strongly influences the lateral momentum balance and generates westward sediment transport. Together, lateral circulation tends to distribute sediment from the channel to both the side shoals during spring tides but generates westward sediment flux during neap tides. The diagnostic analysis of the lateral gradient of suspended sediment concentration (SSC) demonstrates that lateral sediment trapping is strongly influenced by the lateral circulation and the lateral asymmetry in bed erosion during spring tides, whereas lateral advection becomes the controlling factor during neap tides. Mechanisms for the lateral circulation and sediment transport can be extended to other convergent estuaries.