Trade crime is soaring, U.S. firms say, as Trump’s tariffs incentivize fraud

WASHINGTON – As tariffs implemented by President Donald Trump have ratcheted up in recent months, so have the mysterious solicitations some U.S. companies have received, offering them ways to avoid the taxes.

Shipping companies, many of them based in China, have reached out to U.S. firms that import apparel, auto parts and jewelry, offering solutions that they say can make the tariffs go away.

“We can avoid high duties from China, which we have already done many in the past,” read one email to a U.S. importer.

“Beat U.S. Tariffs,” a second read, promising to cap the tariffs “at a flat 10%.” It added, “You ship worry free.”

“Good News! The tariffs has been dropped finally!” another proclaimed.

The proposals – which are circulating in emails as well as in videos on TikTok and other platforms – reflect a new flood of fraudulent activity, according to company executives and government officials. As U.S. tariffs on foreign products have increased dramatically in recent months, so have the incentives for companies to find ways around them.

The Chinese firms advertising these services describe their methods as valid solutions. For a fee, they find ways to bring products to the United States with much lower tariffs. But experts say these practices are methods of customs fraud. The companies may be dodging tariffs by altering the information about the shipments that is given to the U.S. government to qualify for a lower tariff rate. Or they may physically move the goods to another country that is subject to a lower tariff before shipping them to the United States, a technique known as transshipment.

The Trump administration said this month that it would focus more on fighting trade fraud, including tariff evasion. The administration is also trying to convince other countries to step up their own enforcement efforts, including in trade talks with Vietnam, Mexico and Malaysia. But many U.S. companies say the scale of illicit activity now far outweighs the ability of these governments to thwart it.

These schemes are costing the U.S. government billions of dollars in tariff revenue annually, executives and officials say. And they are leaving honest companies that pay tariffs deeply frustrated and worried about being left at a financial disadvantage to dishonest competitors.

“If nothing is done, those willing to cheat are going to continue to win the day here,” said David Rashid, the executive chair of Plews & Edelmann, a car parts company that has appealed to the government to crack down on unfair trading practices by its competitors.

Rashid said that unfairly traded products have filtered into supply chains throughout the United States. “It’s easy to pull the wool over people’s eyes, especially if people like the wool over their eyes,” he added.

As long as the United States has had tariffs, there have been schemes to evade them. That has been true since American colonists smuggled goods into British-dominated ports. But as Trump has raised tariffs to levels not seen in a century, companies say that customs fraud is also reaching new heights.

In his first months in office, Trump put a 10% tariff on most products globally, as well as a 25% tariff on steel, aluminum and cars. He raised, lowered and suspended tariffs for various countries with little warning, putting intense pressure on companies that depend on trade.

The triple-digit tariffs that Trump imposed on China in April, before lowering them for 90 days, were particularly tough for importers. Some companies suspended orders in the face of the tariffs, but the taxes seem to have also prompted a wave of fraud emanating from China.

Leslie Jordan, an apparel manufacturer who has been in business for nearly four decades, said that fraudulent schemes were becoming “rampant” in her industry, with companies offering her and other importers clearly illegal ways to bypass tariffs.

For years, Chinese shippers had offered to help her factories doctor customs forms, telling them there was little chance of being caught because U.S. customs officials would never examine the shipping containers, she said. Jordan has always refused. But tariffs were making business difficult for honest companies like hers, leaving her owing the government tens of thousands of dollars in import duties on some shipments.

Jordan said the tariffs had encouraged “opportunist cheaters in both China and the United States” and put “many honest companies at a competitive disadvantage.”

“People can’t afford it,” she said. “They’re desperate.”

Kush Desai, a White House spokesperson, said that “instead of trying to find illegal workarounds to tariffs, foreign exporters would be better off telling their governments to negotiate a trade deal with the United States.”

John Foote, a customs lawyer at Kelley Drye & Warren, described the uptick in fraud as “a sign of entering a high tariff era.”

He said he had received many innocent questions from companies about whether they could use certain practices to avoid tariffs. Every time he has told a company, “No, that would be customs fraud,” he has marked down a tally on a whiteboard in his office. As of mid-May, he had 11.

“If it seems too good to be true, it probably is,” he said.

Tariff dodging 101

The U.S. government charges tariffs based on the item, its declared dollar value and its country of origin. Several schemes exist to try to evade tariffs by changing those factors.

One method, people in the industry say, involves reporting a lower value for a product than its actual worth. Doing so lowers the tariff that must be paid since it’s charged as a percentage of the import price.

Another scheme is to misclassify the item. An importer might report to the U.S. government that a shipment of shirts is made with a material that’s subject to a lower tariff.

A third method involves physically sending the products to another country before they go to the United States to take advantage of different tariff rates applied to different countries.

That tactic became far more profitable this year as Trump raised tariffs on Chinese imports to a minimum of 145% but left taxes on goods from neighboring countries, like Vietnam, Malaysia and Cambodia, at just 10%. A company looking to avoid tariffs may ship Chinese products to those countries before sending them on to the United States at a lower tariff rate.

The U.S. charges tariff rates based on where a good was last manufactured. So in the eyes of the government, whether this practice is illegal depends on if the company actually has some significant manufacturing step in Malaysia or Vietnam. If the company takes parts of a shoe made in China and puts them together in Malaysia, for example, the shoe may technically qualify as Malaysian. But if a product is actually manufactured in China and is just routed through another country to disguise its origin, that is a violation of U.S. law.

One ad sent to an importer this spring explicitly advertised this scheme. “Malaysia Transshipment Route: Re-load into new containers in Malaysia under a Malaysian exporter’s CO,” it read, referring to a “certificate of origin,” a document that indicates to U.S. customs where the item came from.

The scale of this problem is hard to quantify, since it can be hard to tell what’s going on inside foreign factories. But since Trump started putting tariffs on Chinese imports in his first term, the volume of Chinese products, parts and raw materials exported to other countries before coming to the United States has increased substantially.

In April, for example, Chinese exports to the United States fell 21% compared with the previous year, but Chinese exports to Southeast Asian countries rose by the same percentage.

Many of these Chinese goods are sent through Southeast Asia. But U.S. officials are also increasingly focused on the role Mexico plays as a funnel for Chinese goods to the United States. An analysis by Exiger, a data analytics firm, found that more than 3,000 companies in Mexico depended on Chinese shipments for 75% or more of their supply chain. Many of these companies are subsidiaries of Chinese state-owned enterprises, and most sell products to the United States, the report said.

These shipping channels may help Chinese companies bypass tariffs as well as U.S. laws that aim to combat forced labor in China or block trade with companies that pose national security threats, Exiger said.

Chinese companies are also now marketing a method, which they call “delivered duty paid,” or DDP, that ostensibly reduces the U.S. importers’ legal liability for tariff fraud. Typically, a U.S. company takes legal ownership of a product at a factory in China and then is responsible for shipping it overseas and paying duties to the U.S. government when it comes into the United States.

But in this case, the Chinese company acts as the U.S. importer, retaining ownership over the good as it is shipped across the ocean and into the United States. The Chinese company then pays U.S. customs fees before handing the good over to the U.S. company inside the United States.

With this method, the U.S. company does not have direct knowledge if tariffs are evaded. And if the U.S. government tries to pursue legal action against the Chinese firm, it may find it is just a shell company with no one to pay the bill.

But Foote cautioned that this was still “a very fraught proposition” for any U.S. company. He said that the method might reduce a U.S. purchasers’ liability but wouldn’t absolve it entirely, particularly if the terms of trade would be unachievable if not for customs fraud.

Christopher Carney, an auto industry executive who traveled to Washington this year to urge Congress to do more to fight trade crime, said companies offering these schemes were operating with “a sense of impunity.”

“It’s a long way away, and nobody is that worried that the U.S. government is going to come to China and arrest them,” he said.

Cat and mouse

Many executives say the U.S. government is ill-equipped to police rising levels of fraud.

In May, the Department of Justice said that trade and customs fraud would be a new priority under the Trump administration. But other Customs and Justice Department officials who have focused on trade crime have been reassigned to work on immigration and other issues in recent months.

And many U.S. firms that have seen their business hurt by trade crime have been left deeply frustrated after trying to work with the government.

Brad Muller, the vice president of marketing and government affairs at Charlotte Pipe and Foundry, a 124-year-old manufacturer based in Charlotte, North Carolina, said his company had won several trade cases in the first Trump administration that resulted in high duties on Chinese products.

But the Chinese companies immediately began transshipping their products through Cambodia, Malaysia and other countries, and the U.S. government was unable to stop them, he said.

“Customs, they will run down these companies and shut them down, and then they just pop up right across the street with a new shell company,” he said. “It becomes a game of Whac-a-Mole.”

Muller said his company was deeply supportive of tariffs but that they were working “less than ideally” and that the system was “opaque and rife for cheating.”

“The holes in our trading regime are now so blatant,” he said. “It’s been swept under the rug by Democrats and Republicans for a long time.”

Trish Driscoll, a spokesperson for Customs and Border Protection, said in a statement that the department uses enforcement tools, intelligence and partnerships to combat tariff evasion and, as a result of recent presidential actions, is now imposing the most severe penalties permitted by law. She said that during the week of May 5 through 9, CBP took in more than $630 million by reviewing more than 2,000 shipments detected for duty evasion.

Importers are urging Congress to give the government more resources to go after fraud, including passing legislation that would result in more criminal penalties for trade crimes.

Muller said he supported Trump’s use of tariffs to crack down on unfairly made imports but that the president’s actions had been “whipsaw and shoot from the hip” and that the situation called for broader action.

“We need Congress to step in and do something more comprehensive so the president doesn’t have to go around shooting first and asking questions later,” he said.

This article originally appeared in The New York Times.