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Trump’s Tariff Crackdown Could Create Environment Rife With Customs Fraud
Kate Nishimura
5 min read
With tariffs on China-made goods skyrocketing to a whopping 145 percent, something’s got to give—and Chinese producers don’t want it to be their share of the export market.
In the wake of President Donald Trump’s tariffs on the so-called World’s Factory, suppliers and their customers may be tempted to engage in workarounds that save them from paying prohibitively steep duty bills, according to Charles Schwab & Co. chief global investment strategist Jeffrey Kleintop. In fact, the temptation to take part in tariff avoidance—a form of Customs fraud—could prove “overwhelming” for U.S. companies in the months to come should the White House hold firm to its triple-digit tariff plan.
“We look at what these items are invoiced at when they’re leaving China, and what they’re invoiced at when they’re coming in the U.S., and that’s where we can see there’s a 20-percent gap,” he said. In 2024, the U.S. reported taking in $567 billion in imports from China and Hong Kong, while China and Hong Kong reported exporting $453 billion in products to the U.S.—an unreconciled delta of $114 billion, according to data amassed by Charles Schwab from several sources including the China’s Custom’s department and the U.S. Census Bureau.
“There could be legitimate reasons why that could be the case: there are time differences which could apply to some products that are commodity based; there are certainly some that could relate to just currency translation issues,” Kleintop said—but the truth remains: U.S. imports from China are already being under-reported at a significant rate. “It’s a pretty big deal, and that wasn’t always the case.”
In the past, China-based firms routinely over-invoiced their products to try to move money out of the country’s economy, he explained. But since Trump’s Section 301 punitive duties were rolled out during his first term in office, an opposing trend started taking shape, “and it’s widened a little every year,” the investment strategist said. “The incentives are obviously much greater now, so it wouldn’t surprise me to see that to continue to widen.”
Amid on-again, off-again tariffs on nations across the globe and the closure of the de minimis “loophole” for China-made goods, illicit activities like under-invoicing stand to create “an explosion of complexity for a [Customs] specialist to deal with.”
“With the incredible understaffing that they seem to be faced with right now and the additional software challenges, it’s going to be really hard to enforce [the new duties],” Kleintop explained. “There’s just not enough hours in the day for them to even make much of a dent in what could be a really big step up in in tariff avoidance.”
Illustrating the scope of the issue, Kleintop pointed to inadequacies in Customs and Border Protection (CBP) staffing. “Basic math leads me to the conclusion that the CBP number of import specialists at ports who are responsible for classifying and appraising commercially imported merchandise that enters the country likely number a little over 1,000,” he said, pointing to data from the agency’s website which is admittedly several years stale.
Those historical insights help paint a picture, though, of the sheer magnitude of CBP’s responsibility. “Going off that assumption, since the Ports of Los Angeles and Long Beach by themselves will process about 115,000 TEU next week (much of it on the most popular route from Shanghai); with 70 ports in the U.S. there might be 310 specialists at that port (weighted by average port volume for L.A. and Long Beach at 31 percent of U.S. containerized trade),” he said. “So that is about 50 TEU per CBP specialist per day.”
Even a high-level inspection using an X-Ray and reconciliation against shipping documents could take 15 to 20 minutes, he said, with physical inspection taking at least an hour.
It’s easy to see how a challenge becomes untenable when suppliers and importers double down on flouting the rules, Kleintop said. Firms are already engaging in practices like transshipment as a means of skirting duties, and he believes that stacking the issue of under-invoicing could lead to “30, 40, even 50 percent of the tariffs effectively being avoided through these mechanisms.”
For companies on the brink of collapse, the appeal is obvious. “It might mean that the tariffs are less onerous than they appear on the surface, a little less bite than bark,” he added, explaining that “a lot of smaller businesses are just looking to find ways that they can survive in an environment where their costs may be jumping to a huge degree.”
“This may look like a viable option to them to stay in business,” he said. “When your back’s against the wall, difficult decisions often get made.”
But in the long run, the distortion of import data could contribute to recession risks. Inbound container volumes are set for a nosedive, and anecdotal reporting indicates that many brands, retailers and manufacturers dependent on overseas inputs have put a freeze on orders.
“Trade is the lifeblood of so many businesses, so if there’s a backlash to that, it really can have a dramatic impact. If we’re not getting good data, we have to rely a bit more on anecdotes, and so the market gets a bit more jumpy when it hears reports,” Kleintop said. “We can’t necessarily trust, in real time, the data that we’re getting, so businesses are more likely to pull back on capital spending, on hiring decisions, and hold back on their guidance to analysts on their profit outlook.”
