Chinese exporters undervalue cargo to skirt Trump tariffs

Chinese manufacturers are attempting to avoid the Trump administration’s tariffs by fraudulently undervaluing cargo sent to the US, exploiting a system that American authorities have struggled to police.

The Financial Times reviewed offers by Chinese chemicals and packaging suppliers to send goods to small US companies with “delivery duties paid” — a process known as DDP that allows the exporter to cover tariffs.

The suppliers said the process would enable them to drastically reduce the cost of tariffs because they would deliberately undervalue the goods sent, or alter their descriptions to lessen the duties owed.

“We see more instances of factories in China offering to pay the customs duties for companies, and then sell them the merchandise in the US at prices below what the duties should be,” said Ryan Petersen, chief executive of logistics platform Flexport. 

The practice threatens to undermine efforts to incentivise US companies to source products from domestic manufacturers, one of the aims of President Donald Trump’s tariffs. It might also temporarily insulate American consumers from some price increases to everyday goods.

“This is nothing but a tariff dodge,” said Dan Harris, a US lawyer who works with companies that source goods from China. While federal prosecutors would go after US companies colluding in the practice, “there is not much that [they] can do” to pursue Chinese counterparts, Harris added.

Aaron Rubin, who owns logistics company ShipHero and a martial arts equipment distributor, 93 Brand, said his Chinese suppliers “have offered to do DDP and pay [the additional tariffs]. They said ‘we are going to cover 100 per cent of the duties’ . . . I would never get a bill.”

Businesses such as Rubin’s, which have reported such approaches to US Customs and Border Protection, are concerned that competitors are accepting the deals, leaving law-abiding companies at a disadvantage.

The practice “shuts down my ecommerce business”, said Rubin. “I can’t afford to pay a 175 per cent tariff if my competition isn’t going to pay it; no one is going to buy my [more expensive] goods.”

The owner of a California-based food manufacturer, who asked not to be named, said one Chinese supplier “offered to change the cogs on invoices to help me evade tariffs” soon after Trump rolled out the increased duties.

“My option is to lay off my team or join in the fraud,” the owner said.

Some of the Chinese companies who approached US businesses offered to register as a “foreign importer of record”, which would make them legally responsible for paying any duties owed.

The US is unusual among major economies for allowing foreign companies without a presence in the country to post a small bond to register as importers, making it hard for authorities to enforce large penalties.

A government report in 2008 found that the Department of Justice rarely pursued cases of fraud by “foreign importers of record”, because “it is unlikely that collection actions based upon delinquent duties can be successfully brought in [a] foreign court”.

The problem was also highlighted in conservative think-tank Heritage Foundation’s Project 2025 report, which has functioned as a blueprint for some of the Trump administration’s policymaking.

The paper suggested that the US government “either require foreign importers of record (IORs) to make cash deposits far in excess of established duty rates at the time of entry” or “require IORs to register sufficient US assets to ensure timely payment of duties”.

Callie Milford, who runs soap and beauty products company No Tox Life, has also been approached by suppliers offering to dodge tariffs.

Her Texas business manufactures in the US but sources some packaging from China. After the Trump administration first imposed higher tariffs on Chinese goods in February, she asked her long-standing suppliers how much her costs would increase as a result.

The majority of responses, which were shown to the FT, were: “Your price won’t really go up, because we’re going to use DPP shipping and essentially under-declare the shipment,” Milford said.

They added that due to a recent jump in transport costs, the shipping price would “go up a little bit, but the amount that it was going to go up was nothing compared to the tariffs”, Milford added. 

Louisiana Senator Bill Cassidy, who has long campaigned for customs reform, said the government needed to “give CBP the tools to properly police shipments coming from China”.

Cassidy said he was working on a bill “to increase visibility in our international supply chains” and planned to introduce it in this session of Congress.

In a statement, the CBP said it “enforces tariffs through a combination of legal authority, advanced systems, and operational procedures” and that “as a result of recent presidential actions, enforcement will include the most severe penalties permitted by law”.

Chinese logistics managers told Nikkei Asia last month they were creating shell companies to evade tariffs. The FT also reported that Chinese exporters were attempting to avoid tariffs by shipping goods via third countries.