Reroute, Mislabel, Underreport: How Exporters Could Avoid Paying Over $30B in US Tariffs

Tariffs on foreign imports like the ones President Donald Trump implemented this weekend can generate significant income for the U.S. government—but that’s only if the government can collect.

On Saturday, Trump ordered 25% tariffs on Mexico, 25% tariffs on Canada, and 10% tariffs on China would go into effect this week. By Monday, the tariffs on Mexico were delayed by a month.

One of the benefits of implementing tariffs is that it could help decrease the federal budget deficit. However, a report from Goldman Sachs showed that exporters have found ways around paying tariffs, which could result in less income for the government than expected.

Goldman Sachs estimates that the U.S. could lose out on nearly $30 billion in revenue as exporters look to avoid the 25% tariff on imports from Mexico and Canada. That is more than the about $18 million in revenue lost during the 2018-2019 trade war during Trump’s first time, Goldman said.

How to Beat Tariffs: Rerouting, Underreporting and Mislabeling

The most common way exporters evade tariffs is by shipping their goods through other bystander countries not subject to the tariff, what Goldman calls “entrepot trade.”

Goldman Sachs said this trend is likely seen in trade data with India and Vietnam. The U.S. has increased trade with those nations since 2016, but those nations have also increased their trade with China, which has already been subject to tariffs before Trump’s new proposal.

Other methods of evasion include underreporting the value of goods or mislabeling what items are to make them appear to be similar products subject to lower rates. 

“Entrepot trade incentives only exist when tariff rates vary across countries, while mislabeling incentives only exist when tariff rates vary across products. In contrast, the incentive to underreport always exists while tariffs are in place,” the Goldman Sachs note said.