Goldman Sachs Analysis on Tariff Evasion

Analysts at Goldman Sachs have pointed out that tariff evasion is a significant factor in the notable drop in U.S. imports from China, which have decreased by $240 billion since the trade war began in 2018-2019.

Goldman emphasized, “Tariff evasion likely overstates this decline,” noting that addressing evasion might be a priority for a potential second Trump administration.

Methods of Tariff Evasion

Goldman Sachs identifies three primary methods of tariff evasion:
1. Entrepot Trade: Routing goods through third-party countries.
2. Underreporting: Declaring goods at a lesser value than their actual worth.
3. Mislabeling: Incorrectly labeling goods to benefit from lower tariffs.

Entrepot trade impacts bilateral trade flows, whereas underreporting affects overall import totals. Mislabeling does not change headline trade data.

In their research, Goldman estimates that tariff evasion has had a significant effect. They believe in 2023, entrepot trade rerouted $30-50 billion worth of trade, contributing to 20% of the reported decline in U.S. imports from China.

Additionally, the analysts noted a $150 billion discrepancy between U.S.-reported imports and China-reported exports to the U.S. They attribute $80 billion of this gap to tariff evasion, which is divided evenly between underreporting and mislabeling.

Goldman estimates total tariff evasion in 2023 to be between $110 and $130 billion:
– Entrepot Trade: $30-50 billion
– Underreporting: $40 billion
– Mislabeling: $40 billion
This has reduced the U.S.-China trade deficit by $70-90 billion (from entrepot rerouting and underreporting).

Future Projections

If tariffs on Chinese imports and European autos increase, Goldman projects an additional $125 billion in tariff evasion and an $80 billion further reduction in the reported U.S.-China trade deficit.