A record mismatch in official trade statistics is complicating efforts to measure how far the U.S. and China have “decoupled,” according to Bloomberg, which cited an $112-billion gap between what Beijing said it exported to the United States and what U.S. Customs and Border Protection recorded as arriving.

The discrepancy suggests that as much as a quarter of China’s shipments to the U.S. may have avoided full tariff exposure, Bloomberg said. The most likely explanation: widespread fraud and tariff evasion. 

While U.S. authorities are aware of suspected schemes, they face limits in reach and jurisdiction, the news outlet reported. Enforcement has not kept pace with tactics, including the use of shell companies that offer steep shipping discounts, undervalue cargo on customs declarations, and then vanish.

One means to dodge tariffs is the use of a mechanism known as “Delivered Duty Paid.” Under DDP arrangements, the overseas seller takes care of shipping, customs clearance, and ostensibly the payment of tariffs, Bloomberg said. 

DDP isn’t fraudulent when done by the book, and the promise of a low-hassle shipping arrangement often appeals to American buyers, the news outlet said. But the arrangement is vulnerable to fraud when those tasked with bringing goods through customs intentionally undervalue the goods or misclassify them to obtain a more favorable tariff rate. 

Criminals separately combine this process with the exploitation of shell companies or non-resident entities cited as the importer of record, making it all the harder for authorities to track them down should fraud be identified, according to the report. 

“If you want to commit fraud, this is how you would do it,” Carrie Owens told Bloomberg. Owens previously served as the Department of Homeland Security’s intelligence office and 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,” she said in the report.  

“Tariff cheating is much, much worse than tariffs for us,” Michael Kersey, president of the American Lawn Mower Company, told Bloomberg. The company began outsourcing production to China two decades ago and has paid duties of as much as 45% over the past year to bring goods into the United States, according to the report. 

For analysts tracking U.S.-China trade flows, customs malfeasance is one reason headline import data may not capture the true level of commerce, a point gaining urgency amid strained trade relations between Washington and Beijing, Bloomberg said. 

Read more at Bloomberg