President Donald Trump's sweeping tariffs were designed to generate revenue and reshape global trade, but the higher costs have also reportedly created a powerful incentive for companies to find ways around them.

Trump Tariffs Fuel Incentive to Evade Import Taxes

The White House is now targeting a growing tariff-evasion problem that it says is costing the U.S. $19 billion to $26 billion in annual tax revenue.

A report published Tuesday from the White House Office of Trade and Manufacturing Policy said companies, particularly those dealing with Chinese goods, are routing shipments through third countries to avoid higher U.S. tariffs.

The practice, known as transshipment, can involve disguising the true country of origin of goods before they enter the U.S.

Ryan Petersen, CEO of supply chain management platform Flexport, told Fortune that the tariffs themselves have helped create the incentive.

"The tariffs have created a huge incentive," Petersen said, "If your tariff was 0%, there's no need to commit fraud; there's no tariffs to evade."

He added that when tariffs rise, companies have greater motivation to alter their trade practices, including misrepresenting a product's value, classification or country of origin.

The White House did not immediately respond to MarketDash's request for comment.

China-US Trade Gap Raises Questions

The scale of potential tariff evasion could be significantly larger than the White House estimate.

Data from China's General Administration of Customs and the U.S. Census Bureau showed a $112 billion discrepancy between what China reported shipping to the U.S. and what the U.S. reported receiving last year, the report said.

The gap does not by itself prove $112 billion in tariff fraud, but it highlights the potential scale of discrepancies in China-U.S. trade flows and raises questions about whether goods are being rerouted through third countries.

The White House identified China as the primary source of goods involved in transshipment, with exports allegedly routed through more than 40 countries.

White House Moves to Crack Down

The administration has tightened rules for foreign importers and is deploying AI to analyze shipment data, routing histories and customs documents for signs of tariff evasion.

The crackdown comes as the administration argues that tariff dodging not only reduces federal revenue but also puts companies that comply with U.S. trade rules at a competitive disadvantage.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by MarketDash editors.

Image via Shutterstock