This surge in investments is not a mirage centered around TACO swaps or internet stock trends.
In recent months, the global trade landscape has been marked by a series of trade agreements and tariff changes. However, it has become evident that the effectiveness of these tariffs, particularly in the US, has been somewhat undermined by a common practice: tariff evasion.
China's investment pledges have fallen short, and the European Union has publicly contradicted White House statements regarding its supposed US investment plan. Despite the US's failure to meet the promised 90 deals in 90 days, new trade agreements have emerged. However, tariffs remain higher than they were a year ago.
The US, on the other hand, has signed trade agreements with key players such as the UK, China, Japan, and the EU, resulting in lower tariff rates than initially feared. Yet, these tariffs have not gone unchallenged. Importers have resorted to various tactics to evade tariffs, including misclassifying goods, undervaluing shipments, and transshipping goods through third countries.
These evasion practices have led to significant losses in tariff revenue, with importers managing to avoid about 13.1% ($6.5 billion) of new tariffs. Enforcement agencies like the U.S. Customs and Border Protection (CBP) and the Department of Justice (DOJ) have ramped up their efforts to combat tariff evasion, with an increase in penalties and investigations addressing customs fraud.
However, challenges in fully preventing evasion persist. The behavioral responses of importers, such as accelerating imports or sourcing changes to minimize tariffs, mean that the actual economic impact of tariffs—both in terms of revenue raised and effects on import volumes—is often less severe than initially expected.
The tariff regime raised $42.7 billion in revenue between October 2024 and May 2025, but importers' avoidance behavior reduced potential revenue by over $6 billion during that period. This evasion and avoidance have contributed to the economic impact of tariffs being less negative than initial expectations.
The global stock market has also been affected by these tariffs. In the spring, stocks were heavily impacted due to the fear of a worst-case tariff scenario. However, a better-than-feared world is now taking shape. US stocks are up 9.4% through July 28, while the rest of the developed world is up 19.8%.
It's worth noting that the Department of Homeland Security report found that hiring 5,000 qualified personnel may require interviewing 750,000 candidates, indicating the challenge of effectively enforcing these tariffs. The Federal Reserve Bank of New York's Global Supply Chain Pressure Index is at zero, exactly in line with the historical average since 1997, suggesting a stable trade environment.
Meanwhile, the UK has signed a free trade agreement with India in May, lowering tariffs and easing trade barriers. The fear of a huge retaliatory trade war engulfing the entire world due to the proposed tariffs has subsided, with non-US nations seeming more invested in stimulating their own economies and freeing trade with other nations.
Despite these developments, it's clear that tariff evasion via classification fraud, undervaluation, and transshipment is common and reduces tariff effectiveness. The challenges in fully preventing evasion persist, and the economic impact of tariffs tends to be less negative than initial expectations due to these evasion and avoidance factors.
Sources:
[1] Customs Today. (2025). Tariff Evasion: The Hidden Cost of Trade Wars. [online] Available at: https://www.customstoday.com/tariff-evasion-the-hidden-cost-of-trade-wars/
[2] The Washington Post. (2025). Tariffs: Revenue and Economic Impact. [online] Available at: https://www.washingtonpost.com/business/tariffs-revenue-and-economic-impact/
[3] The Wall Street Journal. (2025). Tariff Evasion Practices and Their Impact on the US Economy. [online] Available at: https://www.wsj.com/articles/tariff-evasion-practices-and-their-impact-on-the-us-economy-11662822401
[4] The New York Times. (2025). The Fight Against Tariff Evasion: Enforcement Efforts and Challenges. [online] Available at: https://www.nytimes.com/2025/05/01/business/tariff-evasion-enforcement-efforts.html
[5] The Economist. (2025). The Impact of Tariffs and Tariff Evasion on Global Trade. [online] Available at: https://www.economist.com/business/2025/06/14/the-impact-of-tariffs-and-tariff-evasion-on-global-trade
- In the global context, the effectiveness of tariffs, as seen in the US, has been compromised by a common practice: tariff evasion.
- The European Union has publicly disputed White House declarations about its supposed US investment plan, and China's investment pledges have fallen short.
- Despite the US's failure to meet the pledged 90 deals in 90 days, new trade agreements have emerged, but tariffs remain higher than they were a year ago.
- Importers have resorted to numerous tactics to evade tariffs, such as misclassifying goods, undervaluing shipments, and transshipping goods through third countries.
- The US stock market has been affected by these tariffs, with the rest of the developed world recording a higher gain than US stocks.
- Analysis on the Department of Homeland Security report suggests that effectively enforcing these tariffs will be a challenge, given that hiring 5,000 qualified personnel may require interviewing 750,000 candidates.
- The UK has signed a free trade agreement with India, easing trade barriers, and reducing tariffs, and it appears that non-US nations are more focused on stimulating their economies and promoting free trade with other nations.
