LANSING, Mich. (News 10) – A renewed push by the White House to crack down on international tariff evasion could soon hit the pocketbooks of Mid-Michigan families, according to a local economist.
Federal authorities are targeting what is known as “transshipping” or rerouting, a process where manufacturers hide the true origin of their goods by shipping them through a third country to avoid high U.S. tariffs.
Oren Ziv, an Associate Professor of Economics at Michigan State University, says the practice is widespread and incredibly difficult to police.
“You might make something in China, then you move it through Mexico and then declare it’s produced in Mexico when you get to the U.S.,” Ziv said. “That’s the sort of thing that the White House is concerned about.”
According to a recent White House report, there are roughly 40 countries participating in these rerouting networks.
While trade with China has dropped since the implementation of heavy tariffs under both the Trump and Biden administrations, trade with Mexico has boomed.
While some of that increase is legal diverted trade, the White House suspects a massive amount of Chinese-manufactured goods are being masked as Mexican products to exploit trade agreements.
To stop the flow, U.S. Customs and Border Protection is planning to deploy artificial intelligence to run invoice-by-invoice audits at the border. But Ziv, who has researched customs data alongside graduate students, says the “lies” are often too subtle for standard detection tools.
Trade agreements rely on “rules of origin” determined by the percentage of value added to a product in a specific country.
“It’s not really a question about whether these countries are or these firms are lying about where the goods from really,” Ziv explained. “It’s really about are they lying about what parts of the production process happened where.”
Ziv warns that while cracking down on transshipping protects the federal treasury’s tax revenue, it will ultimately drive up costs for average consumers.
“Consumers want general products, the same product for less money. So anything that helps reduce the cost of products would help consumers. And that includes something like this, be it legal transshipment or illegal transshipment,” Ziv said.
Beyond retail goods, Ziv notes that local manufacturers are often caught in the crossfire of trade wars.
Supply chains are deeply globalized, and the very tariffs meant to protect American companies can raise the costs of their raw materials, Ziv said.
“The answer to like who wins and who loses from a tariff can get really complicated and even sometimes have really unpredictable answers,” Ziv said, pointing to appliance giant Whirlpool, which lobbied for tariffs on Chinese appliances in 2018 only to be hit with high costs on imported Chinese steel used to build those very machines.
Despite political focus on trade deficits, with the U.S. trade deficit sitting at $371 billion this year, Ziv notes that a widening deficit is actually a historical indicator of a strong domestic economy.
“Typically when the trade balance becomes more negative, for us, that typically means the economy is actually doing better,” Ziv said. “So when there’s a bigger trade deficit, that’s usually a good sign for the economy.”
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