Draft Dodging the Trade War: How Companies are using Sneaky Tricks to avoid paying increased US/Chinese Tariffs

For as long as there has been a system in place, there have been people trying to cheat that system. Back in 1879, an importer was caught coloring their sugar shipments with molasses to fool inspectors into taxing it as a lower cost product. Verification methods have increased in efficiency since then, but thanks to this trade war between the US and China, so have a lot of tariffs. Faced with such steep fees, importers and exporters are taking drastic actions, sometimes even illegal, to protect their bottom line.

With many of Trump’s tariffs fast approaching, and with the holiday season approaching even faster, many shippers are rushing to get their deliveries through in time. Exporters are stuffing their ships to the brim while Importers are clearing up as much storage space as they can muster, all to get as many goods to where they need to go before they’ll have to pay steeper fees. Those with bigger budgets and tighter deadlines are upgrading their shipping methods from sea to air, as even the increased cost is less than what Trump’s tariffs will charge once they go into effect.

But rush jobs like these are short-term solutions.

Deliveries will still need to be made once the tariffs are implemented, but just as the charges are rising, so too are the workarounds used to avoid paying them. One of the oldest tricks in the book is sending the goods to an exempt country first before sending them off to their final destination, a process known as “transshipment.” Countries like Malaysia make excellent middle men in this regard, passing the Chinese cargo to American buyers and turning a tidy profit in the process. It’s not always as easy as simple adding an extra stop on the route, many goods need to be repackaged and reclassified before being sent on their way in order to uphold the illusion. The counterfeiting process itself has grown into an industry of its own, an industry that is expected to grow once the tariffs take hold.

Officials and executives from all countries and companies claim they would never engage in such shady practices, but words are cheap and these tariffs are not.

There isn’t much verified data on the amount of transshipments and intentional misclassifications, but the very nature of fraud makes it difficult to properly quantify. And due to so many parties being involved in even the simplest of international trade deals, pinning the blame can be a difficult endeavor, to say nothing of catching such fraud in the first place. There are plenty of codes and regulations in place, but classification is often agreed upon between the buyers and sellers themselves without any outside intervention, allowing such instances as high-taxed Chinese diamond drills getting shipped under the classification of grinding equipment. Much of the cargo that comes and goes through ports is not verified beyond scanning a tag, mainly due to how tedious the verification process can be. Those codes and regulations we mentioned before can be so meticulous, distinguishing prices based on differences down to the millimeter in some cases, that enforcing them is overlooked in the name of expediency. All the red tape and paperwork authorities have to go through just to process the cases they do catch only adds to the frustration, especially when it turns out that some of the tricks sneaky shippers employ aren’t technically illegal.

Customs brokers and consultants put a lot of effort into bending the rules, but don’t always break them. With the right loopholes, things like transshipments can come through squeaky clean, even if they are frowned upon by those collecting the tolls. That is the very reason President Trump has been applying his tariffs so broadly, his goal is to crackdown on the workarounds and catch as many taxable shipments as he can.

An understandable goal, if not exactly a practical means, especially when there’s a much better way.

With its decentralized ledger technology, blockchain-based systems ensure that all goods are thoroughly accounted for every step of the way, preventing things like transshipments and misclassifications without punishing honest entrepreneurs. Export Portal is proud to say we have been developing our own proprietary blockchain network, and are hoping to see such efficient methods spread throughout the industry.

Until that day comes, we’re afraid everyone will just have to pay the piper.