Without strong trade enforcement, trade rebalancing efforts are for naught.
It’s a day that ends with “Y,” which means there is some tariff-related news. This time, however, the news isn’t about the Trump administration’s current tariff woes. In fact, this new development is going to have some massive impacts, regardless of what happens with those tariffs. The Department of Justice (DOJ) and Department of Homeland Security (DHS) are teaming up to establish a cross-agency Trade Fraud Task Force.
Announced on Aug. 29, this task force aims to ramp up trade law enforcement to stop tariff evasion. The DOJ says that “trade fraud not only deprives the government of vital revenue used to reinvest in America, but also threatens critical domestic industries, undermines consumer confidence, and weakens national security.”
But what does trade fraud and tariff evasion even look like?
It can be hard to imagine that such a large-scale circumvention of U.S. law is even possible, but it’s becoming increasingly common. As of 2023, tariff evasion was around $110 to 130 billion, according to Goldman Sachs. And that was before Trump announced more tariffs, which may increase that number even further.
Tariff evasion can take many forms. One simple way is by lowering the value of goods to pay a lower tariff. An item worth less is subject to a lower tariff, so tariff evaders artificially decrease a product’s worth. Another way is to lie about the materials used in an item. As this New York Times example points out, polyester is subject to a higher tariff than cotton. Tariff evaders may claim a shirt is made from cotton, when really it’s polyester, to avoid the higher tariff.
One form of tariff evasion we’ve covered before is transshipment: the practice of making an item in one country, sending it to another, and claiming that the item’s country of origin is in the second country, although all work to make the item was done in the first. Tariff rates are determined by the country in which a product was last manufactured before being shipped to the United States. So, transshipping a product to another country with a lower tariff rate and claiming it was “manufactured” there allows companies to avoid paying the original country’s tariff.
Those who cheat the system hurt companies that are being honest, like Charlotte Pipe and Foundry Company.
The North Carolina-based manufacturer went up against its Chinese competitors that were producing unreasonably low-cost alternatives to their products. After presenting its case to the International Trade Commission, the Commerce Department determined that these Chinese competitors were indeed their artificially lowering their prices by offsetting their costs with enormous state subsidies. This is an example of dumping, and under international trade law, it’s illegal. Sadly, this finding wasn’t enough to put an end to the trade cheating.
Although anti-dumping/countervailing duty actions were taken after the government ruled in Charlotte Pipe’s favor, its competitors simply transshipped their products to other countries and claimed them as the country of origin. But no manufacturing was actually done in these countries.
When Customs authorities investigated the addresses of these alleged factories, “they found an empty warehouse, a bus stop, even a massage parlor, but no foundries.” Because of this, Charlotte Pipe has to continue to suffer because the U.S. government is “unable to stop” these bad actors. As Charlotte Pipe Vice President of Marketing and Government Affairs Brad Muller told The New York Times: “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. It becomes a game of Whac-a-Mole.”
So, what are we doing about it?
There have been some actions taken against tariff evasion tactics like transshipment. The Trump administration has created transshipment tariffs that double the tariff rate for any goods found to be transshipped. However, this still presupposes that the government can catch offenders. As we’ve seen with Charlotte Pipe’s struggles, that is easier said than done.
That’s why this task force is so exciting. It represents a commitment to stopping tariff evaders and leveling the playing field to allow U.S. manufacturers to thrive. Here at the Alliance, we applaud the DOJ and DHS for taking these necessary steps, but we still think there’s more to be done. Actions like this can easily be undone when a new administration comes around.
That’s why we also support The Protecting American Industry and Labor from International Trade Crimes Act. This bipartisan, bicameral legislation increases the DOJ’s ability to prosecute trade crimes by establishing a DOJ-specific task force within the Criminal Division, introducing training to law enforcement officials nationwide and more.
The recently formed Trade Fraud Task Force is an important next step for trade fraud enforcement, but it should be coupled with passage of The Protecting American Industry and Labor from International Trade Crimes Act to ensure that trade enforcement remains a priority in coming administrations. The bill will codify these positive actions into law, ensuring that the infrastructure to tackle trade crimes will remain in place for years to come. We sincerely hope that Washington can continue the positive momentum started by the DOJ and DHS’ new task force and pass this bill into law.