It took a bit of detective work for David Rashid to figure out how a China-based competitor was reportedly evading U.S. tariffs by using countries like Thailand as a springboard to the American market.
Rashid, executive chairman of auto parts maker Plews and Edelmann, did everything from hiring Mossad agents to investigate a Bangkok factory, to combing through corporate filings, to meeting with U.S. officials in order to convince them that Qingdao Sunsong Co. has been evading U.S. tariffs by transhipping from Thailand.
Founded in 1909, Dixon, Illinois-based Plews and Edelmann manufactures power steering hoses, repair kits, turbocharger oil lines and automotive fittings. The company has a 320,000-square-foot manufacturing and distribution facility in Dixon, employing 77 people.
Qingdao-based Qingdao Sunsong Co. also manufactures auto rubber hose and assembly parts for more than 20 original equipment manufacturers in the automotive industry. In 2015, Qingdao Sunsong acquired Moraine, Ohio-based Harco Manufacturing Group.
“Sunsong was shipping from China to their subsidiary in the United States until mid-2018,” Rashid told FreightWaves in an interview. “All of a sudden, there’s this complete gap for two and a half years, and then when Sunsong resumes, their products are coming from this company in Thailand.”
In March 2018, President Donald Trump signed a memo instructing the U.S. trade representative to apply tariffs of $50 billion on Chinese goods, including auto parts.
Rashid decided to look into Sunsong’s factory in Thailand by reaching out to a friend who put him in touch with contractors who previously worked with Mossad, the national intelligence agency of Israel.
“They went out into the field and looked at what was going on at this facility in Thailand, and they were not able to detect any kind of machines, active manufacturing, but they couldn’t get in, so they could never confirm,” Rashid said. “They ended up going to these two ports in Bangkok. They discovered that Sunsong had containers coming in from China, and then containers going right out to the United States. They got the shipping logs and noticed the same harmonized tariff schedule code coming into the country as the same HTS code going out of the country, which means they didn’t even bother unloading the container right before they shipped into the U.S.”
Rashid shared his findings with several federal officials in Washington, which has helped to spur interest in the case. In September, two U.S. representatives on the House Select Committee on the Chinese Communist Party wrote an open letter requesting Homeland Security to look into Qingdao Sunsong.
The letter cited Qingdao Sunsong’s public filings, which said the company’s automotive products are subject to U.S. import tariffs of 25% imposed on certain goods made in China and that “in order to reduce tariff costs, the issuer has accelerated production in Thailand.”
“Reviews of Qingdao Sunsong’s public disclosures lay out a case of blatant trade fraud that is having a catastrophic impact on American manufacturers,” according to the letter from U.S. Reps. Mike Gallagher, R-Wis., and Darin LaHood, R-Ill.
Officials for Qingdao Sunsong did not immediately respond to a request for comment.
In January, the Department of Homeland Security (DHS) raided Harco Manufacturing Group’s complex in Ohio. DHS has not commented on the nature of the search warrant executed against Harco, other than that it was part of a federal investigation, the Dayton Daily News reports.
“This is just about time. I feel very confident that given the mood in Washington, D.C. as it relates to Chinese competition, and the strength of evidence that we’ve been able to gather, eventually, this company will be dealt with,” Rashid said. “The question is, will I be able to protect my various business units? Am I going to be able to protect it and have it survive, or is it going to continue to deteriorate because of this competition that it’s facing from the Chinese?”
Rashid said he would like to see more anti-dumping and countervailing duties, as well as criminal charges, put onto Chinese manufacturers and exporters reportedly using Thailand and countries like Vietnam and Mexico to commit fraud by transshipping through those locations and avoid paying U.S. tariffs.
“I think one way to address transshipment is when you can take out people and put them in jail for a long period of time,” Rashid said. “I think that’s going to cause people to think differently about transshipment than they do today. I’m up late at night. I’m really disturbed by what’s happening, because it’s my livelihood and the livelihood of the people I work with, and that’s very frustrating. We’ve got to keep thinking positively about this and try to figure out how to make it work.”
Related: China boosts its Mexico investments as nearshoring opportunities grow
China has used Mexico to circumvent US tariffs for decades
While Rashid’s investigative work centered on Qingdao Sunsong using Thailand to evade U.S. tariffs, trade experts said Chinese manufacturers have been using Mexico for decades to avoid duties on imported goods.
“It’s been going on for at least 20 years, if not more,” Carleen Lyden Walker, co-founder and managing partner of the Maritime Accelerator for Resilience, told FreightWaves in an interview. “Now there’s increased urgency, because we’re threatening these tariffs, so more and more goods are going to go through Mexico.”
The Maritime Accelerator for Resilience is a U.S.-based maritime innovation organization, according to its website.
Walker said about 20 years ago, her former husband had a brief stint as the logistics manager for a company that imported car parts from China to Mexico that were then trucked to the U.S. under the North American Free Trade Agreement (NAFTA).
“NAFTA was created to benefit trade between Mexico and Canada, with the United States, and it becomes a false prophet, literally, if they’re actually Chinese goods coming through Mexico,” Walker said. “If the United States is serious about tariffs on Chinese goods, then that needs to be applied to Chinese goods, even if they’re coming through Mexico and, to a lesser extent, Canada.”
The automotive sector is one of the key sectors for China-based investors in Mexico, according to Victor Cadena, vice president of the Mexican Chamber of Commerce in China (Mexcham).
Mexcham was founded in 2007 and is headquartered in Beijing. The organization’s goal is to strengthen trade between Mexico and China.
Other manufacturing sectors in Mexico drawing interest from Chinese investors are electronics, such as home appliances, TVs and personal computers, which “have deep roots in the country as well, and the supply chain is also well developed,” Cadena told FreightWaves in an interview in April.
In 2023, Mexico surpassed China as the top U.S. trading partner. Trade between the U.S. and Mexico totaled $798 billion last year, boosted by commodities such as auto parts, passenger vehicles and commercial vehicles, as well as gasoline, computers, home appliances, medical devices, aerospace parts and fresh produce.
This year, trade continues to flourish between Mexico and the U.S., totaling $415.4 billion from January through June, the highest total ever recorded for the time period between the two countries, according to data from the Census Bureau.
For Walker, the surging cross-border trade is a sign that China-based manufacturers are increasing their traffic to Mexico.
Walker was on a call recently with members of the U.S. Customs and Border Protection Green Trade Strategy team and brought up the issue of China circumventing tariffs via Mexico.
“I thought, I’m sure the CBP is paying attention to this, and they didn’t seem to know,” Walker said. “But again, they were not the Mexico trade part of the CBP, but more and more goods are coming through Mexico into the U.S. The Chinese have been doing auto parts for decades. So are we being naive again, as a country, to not recognize that if we’re applying tariffs in one place, it’s just going to come in the other door? What are we prepared to do as a nation to make these tariffs meaningful?”
U.S. authorities have pressured Mexico to end tax breaks and other incentives for Chinese companies in recent months, according to Reuters.
In April, Mexican authorities announced they would halt incentives to Chinese electric vehicle makers. Authorities in the U.S. and Mexico announced measures in July aimed at curbing imports of metals from China and other countries that ship products through Mexico.
Walker said while Mexico is an ally of the U.S., there need to be consequences for Chinese goods coming to the U.S. through Mexico.
“How are we going to look at these Chinese goods coming in through the Mexico border as Mexican products when they’re really not?” Walker said. “Do we just tariff the percentage of Chinese content in those products? That’s an idea, but we don’t want to hurt Mexico as a nation. But how do we put teeth into our tariffs?”
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Critics of tariffs say more import duties could hurt US businesses, consumers
While proponents of tariffs on Chinese goods say they help to protect manufacturing jobs in the U.S. and make the country more secure, others say tariffs only raise the cost of production for manufacturers, as well as increase the prices of goods for consumers.
“We’ve continuously said that the tariffs have not worked in this situation with China,” Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, told FreightWaves in an interview.
Gold said adding tariffs to raw materials like steel and aluminum from China, and commodities like auto parts increases manufacturing costs for factories in the U.S. and Mexico that rely on sourcing from China.
Gold cited the China Section 301 tariffs on almost 400 import categories that were launched
by the administration of President Donald Trump in 2018 and 2019, and continued by President Joe Biden.
In July, Biden and Mexican President Andres Manuel Lopez Obrador announced that steel and aluminum products imported from Mexico will be subject to 25% U.S. Section 232 tariffs unless the steel is documented to have been melted and poured in Mexico, the U.S. or Canada.
The Section 232 tariffs are aimed at curbing imports of metals from China and other countries that ship products through Mexico to circumvent tariffs, Biden and Obrador said.
“I think the challenge we certainly face is that for many companies who rely on inputs to production, that raises the cost for them, which is a problem in this economy right now with the ongoing inflation that we are seeing,” Gold said. “As we’ve all seen, the tariffs are attacks that increase costs. I think we’ve got to find a way to address some of the ongoing China trade issues that are not just issues that we’re dealing with in the U.S. We’ve got to continue to work with our trading partners that all share the same concerns. As we’ve seen, the tariffs just have not worked. All they’ve done is raise costs for companies, for manufacturers and for consumers.”
Pawan Joshi, executive vice president of products and strategy at e2open, said tariffs can create trade barriers that hurt all countries involved in the supply chain.
“Industries need the global market to be successful — unless you are a country that has a captive market where you can essentially produce everything, unless you have very rich resources and you have everything that you need to produce stuff, and you have everything that you need to sell your stuff and thrive and continue to grow,” Joshi told FreightWaves in an interview. “If you look at the top global 10,000 companies, every single one of them has a global footprint. The biggest of big companies in the world cannot thrive by operating in a single country. Those days are gone and they’re never going to come back.”