A staggering $112 billion gap between what China says it shipped to the United States and what U.S. Customs says actually arrived is fueling fresh concerns that tariff evasion has exploded under record-high duties, Bloomberg reports.

New trade data show China reported far more exports to the U.S. last year than American officials logged as imports — a discrepancy large enough to suggest that as much as a quarter of Chinese goods may have slipped past tariffs.

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“Tariff cheating is much, much worse than tariffs for us.”
— Michael Kersey, President, American Lawn Mower Company

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For American manufacturers trying to compete fairly, the fallout is severe.

“Tariff cheating is much, much worse than tariffs for us,” said Michael Kersey, president of the American Lawn Mower Company. “The tariffs are just the cost of doing business, but the tariff cheats are the ones that are very, very damaging.”

Kersey, whose company has paid duties as high as 45% over the past year, says he regularly receives WhatsApp messages and emails offering suspiciously cheap “all-in” shipping deals from China — taxes included.

Some promotions promise China-to-U.S. shipping for as little as 70 cents per kilogram.

“You can’t have an all-in rate per kilo,” said Ryan Petersen, CEO of logistics platform Flexport. Because tariffs are calculated based on value, not weight, he added: “It’s obviously fraud. They’re sort of egregious about it.”

The widening data gap dwarfs discrepancies seen during President Donald Trump’s first trade war. Federal Reserve research previously found that nearly two-thirds of such mismatches stemmed from tariff evasion.

The concern now: steeper tariffs may have spawned a sophisticated underground shipping economy.

“As time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax,” Trump said during his recent State of the Union address.

But critics argue large-scale evasion threatens that strategy.

One common tactic involves a shipping structure known as Delivered Duty Paid, where overseas sellers handle customs clearance and tariffs. While legal in theory, fraud occurs when importers underreport the value of goods or misclassify them to reduce duties.

The scheme often relies on shell companies acting as the “importer of record.” If authorities investigate, they frequently find fake addresses or businesses that have already dissolved.

“If you want to commit fraud, this is how you would do it,” said Carrie Owens, a former senior official 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.”

Owens said these entities can be created overnight and are difficult to detect because they appear like legitimate domestic businesses.

Meanwhile, some business owners say enforcement has lagged.

Ram Radhakrishnan, CEO of freight forwarder Silq, said he has lost customers after they received offers to ship $1,000 worth of goods for just $1,200 — even though tariffs alone should add another $1,000.

“I don’t blame them,” Radhakrishnan said. “They are competing against somebody who is doing the same thing.”

The result, critics argue, is that law-abiding companies are squeezed while bad actors exploit loopholes.

A December analysis estimated that if the trade gap reflects evasion, roughly $3.5 billion in tariff revenue may have gone uncollected in recent months alone.

U.S. Customs says it is aware of the schemes and has “heightened its enforcement” of importer accounts linked to companies registered in China, Hong Kong and elsewhere. The Trump administration has launched a trade fraud task force and expanded whistleblower programs.

But authorities face limits. Shell companies can vanish overnight, and pursuing operators overseas presents jurisdictional challenges.

Owens warned that enforcement often ends up targeting American firms instead.

“I’m not saying that they shouldn’t,” she said, “but I wonder how many resources are being guided to get the numbers up as high as possible for revenue recovered versus stopping the most harm.”

For manufacturers like Kersey, the stakes are existential. He says tariff evasion allows competitors to undercut his prices by 10% to 20%, eroding market share and making it harder to shift production back to the United States.

“When competition is cheating on tariffs this makes it very difficult,” he said.

For now, businesses are urged to file complaints with Customs — but even officials caution that investigations “may take several years to complete.”

As tariffs climb, so too may the incentive to dodge them — leaving a $112 billion question hanging over America’s trade system.