Investing.com — Goldman Sachs analysts highlighted the growing issue of tariff evasion as a significant factor in the apparent decline in U.S. imports from China, which have dropped by $240 billion since the 2018-2019 trade war.
“Tariff evasion likely overstates this decline,” Goldman noted, adding that curbing evasion could become a focus for the second Trump administration.
According to Goldman Sachs, there are three primary methods of tariff evasion: routing goods through bystander countries (entrepot trade), underreporting the value of goods, and mislabeling goods to take advantage of lower tariff rates.
While entrepot trade impacts bilateral trade flows, underreporting affects overall import levels, and mislabeling does not alter headline trade data.
In its research note, the bank estimates that tariff evasion has had a substantial impact. In 2023, Goldman believes $30-50 billion worth of trade was rerouted via entrepot trade, accounting for 20% of the decline in reported U.S. imports from China.
Furthermore, they state that the gap between U.S.-reported imports from China and China-reported exports to the U.S. widened by $150 billion. Of this, Goldman attributes $80 billion to tariff evasion, split evenly between underreporting and mislabeling.
“Our estimates imply $110-130bn in total tariff evasion in 2023—of which entrepot trade accounted for $30-50bn, underreporting $40bn, and mislabeling $40bn—that reduced the bilateral US-China trade deficit by $70-90bn (entrepot rerouting + underreporting),” says Goldman.
Extrapolating these trends to a scenario with higher tariffs on Chinese imports and European autos, Goldman projects $125 billion in incremental tariff evasion and a further $80 billion reduction in the reported U.S.-China trade deficit.
