Bill Lambrecht at the St. Louis Post Dispatch has written an excellent article documenting some of the unexpected problems U.S. manufacturers are facing from illegally dumped imports from China.

Lambrecht relates the story of Missouri's Mid Continent Nail.  The Poplar Bluff, MO-based company was relieved when a 2008 case with the U.S. International Trade Commission (ITC) found that Chinese companies were dumping low-cost nails into the U.S. in an effort to undercut the pricing of U.S. manufacturers.  The ITC determined that these "dumped" nails broke laws guarding against unfair trade.

Following the ITC ruling, the Commerce Department imposed duties on certain nail imports, which should have helped Mid Continent and other U.S. manufacturers of nails for home and industrial use.

Unfortunately, Mid Continent never saw the hoped-for gain in sales.  Instead, underpriced Chinese nails kept coming into the U.S. market.

As Lambrecht reports, Mid Continent, after having spent more than $1 million to win the ITC case, now had to spend another $75,000 on private detectives to find out what was happening.  Lambrecht describes the result:

The detectives discovered that Chinese manufacturers were sending their nails to Korea and Taiwan, where they were reboxed and shipped on to the United States. In some cases, manufacturers in China merely packaged the nails in boxes marked "Made in Taiwan" before shipping to the United States.

A lawyer in Washington for Mid Continent showed the Post-Dispatch "Made in Taiwan" nail boxes that investigators brought back from China — evidence the company turned over to U.S. Customs and Border Protection.

The sad result: Nothing has changed, according to Mid Continent president David Libla.

Lambrecht learned that U.S. customs officials are overloaded with imports and simply "don't have the resources or they don't have the time" to investigate and prosecute fraudulent imports.

Mid Continent's woes are not unique, however.  According to Lambrecht's research, many other industries have suffered similar problems.

Two examples: Leggett & Platt of Carthage, MO, which has tracked inner bedsprings shipped illegally to the U.S. through Hong Kong and Malaysia since winning a trade case in 2008.  M&B Metal Products of Alabama, one of the last American hanger plants, says that Customs failed to collect $50 million in duties last year on imported Chinese hangers.

Last year, U.S. Senator Ron Wyden (D-OR) conducted an investigation through the Senate Subcommittee on International Trade and found that Chinese companies actively seek to commit Customs fraud in order to enter the U.S. market.  An experiment conducted by his staff found that Chinese manufacturers of products subject to anti-dumping and countervailing duty orders have succeeded in circumventing U.S. law.

Wyden found that some Chinese manufacturers even volunteer methods for evading U.S. duties including changing the country-of-origin documents associated with the merchandise, rerouting goods through third countries, or in at least one case, undervaluing their product to lower the cost of the duties owed.

Massive shipments of Chinese goods continue to flow into the U.S. and Lambrecht reports that from mid-2008 through December 2010, U.S. Customs received roughly 300 complaints about evasion of import duties.  However, only $117,000 in fraud penalties was ever collected.  According to the Government Accountability Office (GAO), more than $600 million in duties remain uncollected over six years. The GAO stated that collecting the money is difficult because "companies under investigation often disappear."

So this is where we're at in the convoluted story of U.S. trade with China.  In addition to producing unsafe and tainted products, illegally subsidizing exports, and manipulating its currency, China maintains no real oversight over its manufacturers.  These companies have free rein to ship bogus goods into the U.S.  The continuing losers are America's manufacturers and their workers.

Sadly, U.S. Customs is overwhelmed by this import flood and lacks the resources to take effective action.  The only real chance to change the status quo would be for the U.S. to begin to rectify its huge trade imbalance with China, and stop importing so many products that can be made here.  This is a bit of a longshot, but reducing the flood of imports would have numerous advantages, including relief for overworked customs inspectors.

Click here to read the full investigative article by Bill Lambrecht.