The Numbers Come First
The White House's Office of Trade and Manufacturing Policy (OTMP) released a report Tuesday quantifying what it calls the 'Great Transshipment Scam': the U.S. is losing between $19 billion and $26 billion in tax revenue annually as companies route Chinese exports through third-party countries to sidestep import levies, a practice known as transshipment.
The reported losses may understate the true scale. Data from China's General Administration of Customs and the U.S. Census Bureau revealed a $112 billion gap between what China reported shipping to the United States and what the U.S. reported receiving — a discrepancy that suggests evasion activity is running well beyond the administration's own headline figures.
According to the OTMP report, China is the primary actor, processing exports through more than 40 countries. The report also named dozens of other nations for tolerating shell importers and foreign importers implicated in tariff fraud.
The Incentive Problem
Trade experts are direct about the underlying driver. Ryan Peterson, CEO of supply chain management platform Flexport, told Fortune: 'The tariffs have created a huge incentive. If your tariff was 0% there's no need to commit fraud; there's no tariffs to evade. As those tariffs have gone way up, it's just created a huge incentive to change your terms of trade, to lie about the valuation or the classification or the country of origin of the goods.'
Carrie Owens, a partner at law firm Kelley Drye & Warren and former head of the Enforcement Operations Division at U.S. Customs and Border Protection, echoed that view: 'Why we're seeing transshipment as a much bigger issue now is because the tariffs are higher across the board.'
Transshipment is not new. The practice accelerated in 2018 when, during Trump's first term, tariffs were imposed on more than $250 billion worth of Chinese goods. Goldman Sachs calculated the U.S. lost between $110 billion and $130 billion in revenue from tariff dodgers during that first term alone.
Where Tariffs Stand Today
Trump's second-term 'Liberation Day' tariffs initially imposed levies on Chinese goods of up to 145%. After the Supreme Court struck down the lion's share of tariffs imposed under the International Emergency Economic Powers Act (IEEPA), the administration moved to replicate high tariff levels through duties under the 1974 Trade Act. As of earlier this month, U.S. tariffs on China stood at around 23%, according to the Penn Wharton Budget Model — more than double the approximately 11% rate in place before Trump's second term began.
The OTMP report cited a 2020 Economic Policy Institute study estimating that 3.7 million jobs were displaced between 2001 and 2018 due to the U.S.-China trade deficit, and that the deficit increased by $336.5 billion in that period — a gap the White House argues could eventually cost the U.S. between $60 billion and $606 billion in annual GDP losses.
CEO Times Editorial Read
The administration is right to name the fraud and pursue enforcement — power does leave a paper trail, and a $112 billion customs gap is not a rounding error. But the OTMP report cannot fully escape the paradox it documents: the higher the tariff wall, the greater the reward for scaling it. Every dollar lost to transshipment is a dollar the taxpayer was promised and never received, and every mislabeled container is a competitive blow to the American importer who plays by the rules.
Free enterprise runs on clear, enforceable rules — not on a tariff schedule so steep it turns customs fraud into a rational business decision. The crackdown is necessary. So is an honest accounting of what drove the incentive in the first place.
