The issue is one of representation.
When was the last time you watched a Hollywood movie with a protagonist that was not European or a white American? Just look at action flicks, superhero movies, average trailers or romance, etc.: The protagonists are overall overwhelmingly white guys. And that's a problem- If not an ethical one, at least on an artistic level: If the characters of a movie are of a known race (such as in the adaptations of Ghost In The Shell, or Mulan), casting white actors (instead of Japanese or Chinese ones respectively) is disrespectful to the source material at best. It also benefits everyone who likes movies to have a diverse array of protagonists and characters in the industry. That's the artistic argument, and it's basically the less controversial aspect of the issue.
It's also a general issue that minorities/LGBT people etc. are not represented sufficiently in Hollywood, and when they do, they're often stereotyped greatly- there's a lot of stuff out there about how many Middle Eastern actors could only get cast in supporting roles and usually villains/terrorists at that. So there's some racial profiling and whatnot going on in Hollywood as well (remember last year's "#OscarsSoWhite" controversy?), and people who aren't white and people who aren't male and people who aren't straight are all looking for more representation. Whitewashing is an explicit denial of that representation, it sends a message: "Even though I should be hiring actors of another race to faithfully represent it, I'll go out of my way to cast white actors in those roles." This is the controversial aspect of the issue: Some people feel that all movies need to be as diverse as possible to offset the stereotyping and copy-and-paste casts that brought us to this point, some argue that these worries are completely pointless thanks to creative liberty, and some think that the whole controversy is a waste of time and that we should all just shut up and watch movies.
No one else has the budget and outreach that Hollywood has in the movie industry, so Hollywood is held to higher standards than just "adapting other works into American culture"- Hollywood at this point has become a global organization and so it is beyond being something solely American at this point. As it is beyond being simply American, it doesn't have the "We found no suitable actors of that race!" excuse. This is why complaining about studios in other places hiring actors of the local race is frowned upon: No other studio out there has Hollywood's outreach and budget so it's more understandable that they'd be casting actors easier to find.