China’s $112 billion cargo gap shows record US tariff evasion

By Laura Curtis and James Mayger | Bloomberg News

The messages arrive via WhatsApp and email, promising a deal that seems too good to be legal: a way to move goods from China to the U.S. while avoiding President Donald Trump’s tariffs.

For Michael Kersey, president of the American Lawn Mower Company, these solicitations represent an existential threat. His century-old firm, famous for its push-reel mowers and gardening shovels, plays by the rules. His competitors, he suspects, are somehow bypassing steep trade barriers that Trump is seeking to maintain even after the Supreme Court ruled many of them were illegal.

“Tariff cheating is much, much worse than tariffs for us,” said Kersey, who began outsourcing production to China two decades ago and paid as much as 45% to bring those goods into the U.S. over the last year. “The tariffs are just the cost of doing business, but the tariff cheats are the ones that are very, very damaging.”

Kersey is among a dozen business owners, shipping merchants, trade attorneys and former customs officials who spoke to Bloomberg News sounding the alarm over apparent tariff fraud surging to record proportions. Fueled by aggressive Chinese logistics tactics and the highest duties in a century, the suspected evasion is blunting Trump’s trade agenda while penalizing compliant companies.

The scale of the problem is staggering. Trade data released Thursday showed a record $112 billion gap between what China reported exporting to the U.S. and what U.S. Customs said actually arrived last year. Put simply, that suggests as much as a quarter of what Asia’s top economy shipped to American shores last year slipped under the tariff radar.

While tariff dodging has frustrated the U.S. government for years, this discrepancy now dwarfs the anomalies seen during Trump’s first term. Federal Reserve research at the time found that nearly two-thirds of such gaps stemmed from tariff evasion, although other factors such as China’s tax rebate policy also contributed to misreporting.

The widening gulf since Trump’s first trade war shows that his steeper duties have spawned an underground economy of shipping schemes to get around tariffs. Such tactics raise doubts about whether his signature economic policy can deliver on his promise to revive American manufacturing.

Some advertisements, like those Kersey received, promise China‑to‑U.S. shipping for as little as $0.70 per kilogram, taxes included — a red flag in itself.

“You can’t have an all-in rate per kilo,” said Ryan Petersen, CEO of digital logistics platform Flexport, explaining that the tariff bill for finished goods is calculated by value, not weight. “It’s obviously fraud. They’re sort of egregious about it.”

Flexport and others have raised the alarm in Washington over the flood of offers targeting U.S. businesses struggling to pay duties and stay competitive. Some explicitly offer to “share the tariff risks,” claiming customers have seen cost savings of 40%–50%.

However such savings are secured, Kersey believes they help rival companies undercut his prices online by 10% to 20%, eroding market share and preventing him from moving manufacturing back to the U.S. And even if Kersey manages to claw back the duties he paid after the Supreme Court ruling, continued tariff fraud is likely to keep him at a competitive disadvantage.

“When competition is cheating on tariffs this makes it very difficult,” he said.

Ram Radhakrishnan, CEO of U.S.-based freight forwarder Silq, said he’s lost smaller customers who’ve received offers to deliver $1,000 worth of goods for $1,200 all in. But when the duties alone should cost another $1,000, that’s possible only because someone didn’t pay their dues, he said.

“I don’t blame them,” Radhakrishnan said. “They are competing against somebody who is doing the same thing.”

Phantom importers

One way to avoid tariffs is through a mechanism called Delivered Duty Paid. Under that system the overseas seller handles everything — shipping, customs clearance and, when things are done by the book, even the tariffs.

While DDP isn’t necessarily fraudulent, the promise of low hassle shipping appeals to American buyers facing an increasingly costly and complex tariff regime. The crime comes when those tasked with bringing goods through customs deliberately underreport their value or otherwise misclassify them to get a favorable tariff rate. Buyers don’t necessarily know any law has been broken.

Fraudsters combine that process with the use of shell companies or non-resident entities as the importer of record. If the authorities eventually do come knocking, they’ll often find a fake address or phone number listed for a shell firm that’s already been been shuttered.

“If you want to commit fraud, this is how you would do it,” said Carrie Owens, who recently left the Department of Homeland Security’s intelligence office and previously led the Enforcement Operations Division at U.S. Customs and Border Protection. “You would take on the liability, put it onto a shell company, who then you can run away from very easily and start a new one up.”

Owens, now a partner at the law firm Kelley Drye & Warren, said these shell companies are such a problem because they proliferate rapidly and appear to authorities as any other domestic business, making them hard to detect. Entities can be set up overnight with modest bonds, often by Chinese suppliers in league with aggressive freight forwarders, she said.

Compounding the problem, the Department of Homeland Security, which oversees both CBP and ICE, has redirected resources and staffing from several units responsible for investigating global trade crimes to immigration enforcement efforts, according to a U.S. official familiar with current DHS operations, who requested anonymity for fear of retaliation.

The official website of the division in charge of the units, Global Trade and Investigations, was archived between last October and January, according to public web records. The DHS didn’t respond to requests for comment.

Catching up

The U.S. stands nearly alone among advanced economies in allowing non-resident companies to act as official importers even if they have no meaningful physical presence in the country.

Washington isn’t blind to the problem. The non-resident importer program, designed to streamline imports for integrated industries like automobiles along the U.S.-Canada border, is one of several trade policies under increasing scrutiny. One bipartisan proposal would increase the U.S. assets required for foreign importers, enough to cover potential tariff liabilities. But the bill, introduced early last year, hasn’t advanced.

Another bill introduced earlier this month would scrap the so called “first sale” rule that allows importers to value their goods based on the sale price when they first left the factory, which critics say creates more opportunity for under-reporting.

“CBP is aware of such schemes and has heightened its enforcement of use of Importer of Record accounts associated with companies registered in China, Hong Kong, and other countries,” an agency spokesperson said of suspected tariff evasion tactics in a statement to Bloomberg.

China’s Ministry of Commerce didn’t respond to a request for comment.

In August 2025, the Trump administration launched an interagency trade fraud task force to target evaders with criminal charges and started a whistleblower program. CBP has also contracted AI-powered companies to improve real-time monitoring of global supply chains and work to identify potential violations before goods clear the port.

But authorities remain hamstrung by their reach and jurisdiction. They can’t chase shell companies that evaporate overnight or easily pursue criminals operating from China.

The difficulty in holding the shell companies accountable means the CBP is left to go after U.S. companies for infractions, another way that tariffs meant to protect American firms may end up hurting them disproportionately.

“I’m not saying that they shouldn’t, but I wonder how many resources are being guided to get the numbers up as high as possible for revenue recovered versus stopping the most harm,” said Owens, the former DHS official. She cited the jump in revenue from entry summary reviews last year as a sign that American companies are paying the price for compliance issues.

For now, companies like Kersey’s are encouraged to file complaints through CBP’s e-allegations portal, which can prompt authorities to inspect or seize goods from reported trade violators. But during a recent webinar for trade professionals, a CBP official offered a sobering timeline.

“Please note the investigation and subsequent administrative or legal processes may take several years to complete,” said a CBP staffer during the Jan. 13 webinar. “We ask for you guys to be patient with us, because it is a process, and it could be a long one.”