Trade Fraud & Enforcement Gap

The loophole

In almost every other country, importing goods requires registering a domestic entity, such as an LLC or a sole proprietorship, as the importer of record. The United States and the United Kingdom are the only major economies that do not have this requirement. A Chinese company with no US employees, no US bank account, and no US legal presence can register with Customs and Border Protection and import goods directly, with no legal obligation to maintain any domestic contact for enforcement purposes. As a result, the US government cannot sue a foreign importer who cheats, cannot enforce penalties against one, and its only recourse is referring the case to the foreign government for prosecution, which in practice does not happen. It functions as an honor system with no real consequence for violating it. Most law derives its deterrent effect from the consequences of getting caught; remove the consequences and the structure becomes an open invitation to fraud.¹

How the fraud works

Under tariffs that peaked around 150 percent and later settled around 35 percent on most goods, the incentive math is simple. A merchant who declares ten thousand dollars of goods at a 35 percent tariff pays thirty five hundred dollars, when the goods are actually worth one hundred thousand dollars and should owe thirty five thousand dollars, a savings of over thirty one thousand dollars. Declaring goods at roughly ten percent of their actual value effectively restores pre-tariff economics: the merchant pays 3.5 percent instead of 35 percent, the goods land, and they sell on marketplaces at prices that undercut domestic competitors who cannot match that effective cost basis. At low, pre-tariff rates of two or three percent, the savings were not worth the risk of getting caught cheating; at 35 percent, the math reverses, and markets find a way around the rule.

The scale of the gap

The Chinese government publishes its own export statistics to the United States, and US Customs separately publishes import declaration totals. In 2025, the gap between those two figures was 112 billion dollars, meaning Chinese exports to the United States were reported as 112 billion dollars higher than what those same goods were declared as upon arrival in the US. The entire gap is undervaluation fraud. At a 35 percent tariff rate, that implies roughly 39 billion dollars in uncollected duty for that year alone. Ryan Petersen states it directly: "The Chinese government publishes their export statistics to the United States and they show $112 billion higher export value than what those same goods show up as when they're declared to the US government upon import. That was for 2025."

A theory about Amazon

Petersen offers a specific, self-described personal theory, not documented fact: that Amazon has become the largest freight forwarder on the trans-Pacific Asia-to-US shipping lane, the world's highest-volume shipping route, a development he says has gone largely unreported. His theory is that Chinese merchants selling on the platform have effectively adopted it as their import entity, using its logistics and import infrastructure to run the fraud at scale under a US-registered entity, undercutting US domestic sellers on price because their effective, post-fraud cost is a fraction of the declared rate. The generic, alphanumeric storefront names commonly seen on the platform are, in his reading, a visible symptom: sellers who are not building brand equity because they are not building a long-term business, but exploiting a regulatory gap that could close at any time. Amazon would dispute this characterization, and it remains a named hypothesis rather than a documented fact.

Why it has not been fixed

The fix is technically simple: require every importer of record to have a US domestic entity, require a US bank account to create an addressable financial asset for enforcement, require actual identity verification of the importing entity, and impose real consequences when violations are caught. Petersen spent roughly six months visiting Washington monthly to advocate for exactly this and got smiles and nods rather than action. His diagnosis of why simply showing the problem does not work is the more lasting insight: a person cannot be reasoned out of a belief they were not reasoned into in the first place, so presenting facts and evidence to an audience that was never reasoned into its current position does not necessarily change its mind. He has tried two reframings. The first is national security: the same loophole that lets a merchant undervalue a container lets anything at all be imported with no domestic presence and no consequences, fentanyl or explosive components included. The second is lost tax revenue: these entities pay no US income tax either, because all profit is booked offshore, and requiring a domestic entity would force recognition of US-sourced profit. Neither has yet moved the needle.

Trade as an honor system

The tariff fraud problem is one instance of a broader pattern in global trade: the system runs on declared values that are fundamentally unverifiable at scale. The bill of lading, the shipping document that has functioned for centuries as trade's core instrument, likewise depends on the declaratory integrity of whoever issues it. The difference is that pre-digital trade relied on trust networks carrying real social and commercial consequences for fraud, while the modern import system has extended that same honor-system logic to millions of anonymous cross-border transactions with essentially no enforcement mechanism attached. The same legal framework that governs legal goods governs illegal ones; what differs is who actually bears the enforcement risk, and when that risk approaches zero for legal importers, the fraud rate tends to approach the size of the available tariff savings.

Open questions

Whether Amazon has responded to the freight-forwarder claim, and how, is unclear. Whether Customs and Border Protection's importer-of-record data would allow independent verification of the volume claim is also unclear. Whether the 112 billion dollar gap continues widening as tariff rates stay elevated, or whether there is a saturation point where enforcement risk becomes non-trivial, is unresolved. A national-security framing has moved policy before, in immigration and in export controls on sensitive technology, which suggests the approach can work, though whether the specific mechanism of an import-entity requirement is similarly persuasive to policymakers is a separate and still open question.