Trump Admin Uses AI to Target China-Linked Tariff Evasion
The Trump administration is in the process of developing an AI-powered “detective border” aimed at addressing trading partners suspected of facilitating China’s evasion of tariffs on US imports. In a report released Thursday, the White House Office of Trade and Manufacturing Policy accused dozens of countries of being part of China’s “shadow transshipment network,” sorting them “according to the scale of China-linked trade, the depth of their economic integration with China, and the weak-link advantages that make them susceptible to rerouting activity.” The values of these goods, characterised as transiting thru third countries to circumvent import duties and other trade measures, are derived from an analysis conducted by two governmental and three private-sector entities. AI supply chain firm Exiger has projected a mid-range estimate of $75 billion in illegally transshipped goods occurring between February 2025 and February 2026. This projection translates to a potential loss of tariff revenue ranging from $19 billion to $34 billion.
More than 40 countries are associated with elevated illegal transshipment risk, the report from White House trade adviser Peter Navarro’s office said, and “China’s biggest enablers range from Mexico and Canada on US land borders to the European Union, India, Japan, and South Korea.” In addition to China preserving access to the US market counter to US trade policy, “the spoils of illegal transshipment also enrich the transshipping countries themselves,” the report said. “Local firms capture assembly fees, warehousing revenue, logistics margins, port charges, customs brokerage income, land rents, and export-processing-zone investment. Governments benefit from jobs, tax receipts, foreign investment, and trade growth.” Other named countries include Indonesia, Thailand, Brazil, and Malaysia. Some are recognised for their comparative advantages that can be leveraged, such as labour costs, strategic port access, lenient customs enforcement, or the existence of free trade zones.
The trend is not novel. During President Donald Trump’s initial term, the implementation of elevated tariffs on Chinese exports prompted numerous businesses to adapt by diversifying their supply chains, relocating certain manufacturing operations beyond China’s borders when feasible. This so-called China +1 strategy has catalysed significant investments in Vietnam, Cambodia, and other nations, frequently thru Chinese-owned manufacturing facilities. Upon returning to office, Trump implemented a series of country-specific duties characterised by some of the highest rates, targeting US allies and significant trading partners. Tens of billions of dollars in tariffs have adversely affected compliant importers significantly. The White House’s report acknowledges these “tariff differentials” can increase the incentive to illegally transship, but said tools designed to “detect, deter and prevent” tariff evasion are being deployed. Those tools include an AI-powered “detective border” that will scan shipment data against routing histories, confirm production capacity and ownership relationships and even analyze packaging patterns and X-ray imaging at ports to detect mismatches between what’s declared and what’s actually in a container.
For decades, US trade enforcement authorities have concentrated their limited resources on cases that promise the highest potential returns. Such cases are intricate and frequently require years to develop, resulting in the persistent influx of illicit goods into the US market at prices that undercut fair-market value, thereby jeopardising US commerce. Illegal transshipment presents significant challenges in detection, and ascertaining the country of origin is intricate, particularly when imports consist of components produced across various nations. It remains ambiguous to what extent the supply chain shift detailed in the report is indicative of illicit activities as opposed to genuine transformations in global production and trade. “Effective enforcement therefore requires distinguishing legitimate manufacturing and substantial transformation from pass-through trade and origin shifting,” the report said.
