Economy

Chinese manufacturers are attempting to avoid the Trump administration’s tariffs by fraudulently undervaluing cargo sent to the US, exploiting a system that American authorities have struggled to police.The Financial Times reviewed offers by Chinese chemicals and packaging suppliers to send goods to small US companies with “delivery duties paid” — a process known as DDP that allows the exporter to cover tariffs.The suppliers said the process would enable them to drastically reduce the cost of tariffs because they would deliberately undervalue the goods sent, or alter their descriptions to lessen the duties owed.“We see more instances of factories in China offering to pay the customs duties for companies, and then sell them the merchandise in the US at prices below what the duties should be,” said Ryan Petersen, chief executive of logistics platform Flexport. The practice threatens to undermine efforts to incentivise US companies to source products from domestic manufacturers, one of the aims of President Donald Trump’s tariffs. It might also temporarily insulate American consumers from some price increases to everyday goods.“This is nothing but a tariff dodge,” said Dan Harris, a US lawyer who works with companies that source goods from China. While federal prosecutors would go after US companies colluding in the practice, “there is not much that [they] can do” to pursue Chinese counterparts, Harris added.Aaron Rubin, who owns logistics company ShipHero and a martial arts equipment distributor, 93 Brand, said his Chinese suppliers “have offered to do DDP and pay [the additional tariffs]. They said ‘we are going to cover 100 per cent of the duties’ . . . I would never get a bill.”Businesses such as Rubin’s, which have reported such approaches to US Customs and Border Protection, are concerned that competitors are accepting the deals, leaving law-abiding companies at a disadvantage.The practice “shuts down my ecommerce business”, said Rubin. “I can’t afford to pay a 175 per cent tariff if my competition isn’t going to pay it; no one is going to buy my [more expensive] goods.”The owner of a California-based food manufacturer, who asked not to be named, said one Chinese supplier “offered to change the cogs on invoices to help me evade tariffs” soon after Trump rolled out the increased duties.“My option is to lay off my team or join in the fraud,” the owner said.Some of the Chinese companies that approached US businesses offered to register as a “foreign importer of record”, which would make them legally responsible for paying any duties owed.The US is unusual among major economies for allowing foreign companies without a presence in the country to post a small bond to register as importers, making it hard for authorities to enforce large penalties.A government report in 2008 found that the Department of Justice rarely pursued cases of fraud by “foreign importers of record”, because “it is unlikely that collection actions based upon delinquent duties can be successfully brought in [a] foreign court”.The problem was also highlighted in conservative think-tank Heritage Foundation’s Project 2025 report, which has functioned as a blueprint for some of the Trump administration’s policymaking.The paper suggested that the US government “either require foreign importers of record (IORs) to make cash deposits far in excess of established duty rates at the time of entry” or “require IORs to register sufficient US assets to ensure timely payment of duties”.Callie Milford, who runs soap and beauty products company No Tox Life, has also been approached by suppliers offering to dodge tariffs. Callie Milford, co-founder of No Tox Life, says some of her suppliers have offered to dodge tariffs More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is chief Asia economist at Morgan StanleyBy now, it is abundantly clear that US-China trade has collapsed, as tariff rates are too prohibitive. The recognition of the extent of the disruption to bilateral trade could be an initial gateway towards starting negotiations. As talks progress, there could be room for a mutual agreement to gradually remove the tit-for-tat tariffs — the ones that were put in place by the US after China had retaliated against the imposition of reciprocal tariffs.But average weighted tariff rates will still end the year 34 percentage points higher than they were at the start of the year (which were then at an 11 per cent level imposed after the first round of trade tensions in 2018-19). Investors should accept that fixing the issues underpinning trade tensions is not going to be quick and easy, for the following reasons.First, the Trump administration has imposed tariffs because it thinks that will significantly reduce the US trade deficit and promote onshore production, especially for critical goods. But both of these issues are not likely to be resolved quickly by the imposition of tariffs or the completion of trade deals with numerous trade partners. The sizeable trade deficit reflects a deeper issue about the behaviour of US consumer spending (high) and saving (low). Increasing manufacturing capacity in the US would take time. It is not just about setting up manufacturing plants but rather building a supply chain that is US-centric. At the starting point, US participation in global manufacturing value chains is just 13 per cent, while China is more than three times higher at 41 per cent.Second, in China, there is a very clear policy preference for generating growth via investment, even more so during a downturn. Policymakers prefer to stimulate investment because they believe it creates tangible assets and boosts productivity rather than using it for consumption, which would only mean a rise in debt levels for future generations. Moreover, from a geopolitical standpoint, China aspires to be on the technological frontier and retain its cutting edge when it comes to high-end manufacturing.Against this backdrop, a sustainable turnaround in the bilateral trade balance between the US and China would require fundamental lasting changes to the growth model of these two economies — a tall order. Even if policymakers force the issue by requiring China to step up its active purchases from the US via a trade agreement, implementing it will still be fraught with challenges. The US may not have a ready sizeable supply of goods to export to China and strategic competitive considerations may yet be a hindrance. The US is unlikely to be unwilling to sell high-tech and defence equipment to China, and China will not want to rely on the US as a key supplier of food and energy, preferring to diversify its sources.Finally, from a negotiating standpoint, we believe that both the US and China will want a comprehensive deal, but given the multiple issues involved, these discussions are likely to be complex and will take time to complete.At the moment, investors appear to be taking comfort in the pause in reciprocal tariffs and the fact that trade outside of US-China is on the mend. But we are less confident about the growth outlook. Uncertainty persists and there has already been damage done to the cycle. For China, it is difficult to envisage a scenario in which tariffs return quickly to January 2025 levels. For Asia outside China, trade agreements may be reached but we are unsure if tariffs will go below 10 per cent on the signing of a deal and whether all these agreements will be accomplished before the expiry of the pause.Elevated uncertainty weighs on the business cycle and causes the corporate sector to wait and see if it relates to their investment and hiring decisions. The ensuing slowdown in capital expenditure and trade will be the dominant channel through which tariff policy exerts the biggest growth drag on Asia. We therefore expect China’s GDP year-on-year growth to slow from 5.4 per cent in the first quarter of this year to 3.7 per cent in the fourth quarter, while the rest of Asia will face downward pressures on growth to varying degrees, depending on how exposed they are to trade. The more trade-oriented economies (ie those with a high ratio of goods exports to GDP and that enjoy a stronger contribution to GDP from net exports) will face greater growth damage, just as in 2018-19 when the Chinese economy cooled significantly. We are headed towards a sharp, synchronous slowdown unless we see a quick lifting of tariff-related uncertainty. More

Ford Motor also reported a sharp drop in profits in the first three months of the year.Ford Motor said on Monday that the Trump administration’s tariff policies were likely to lower its 2025 profit, before interest and taxes, by about $1.5 billion. The company also dropped its forecast for the year, saying that predicting the future had become too hard.Ford is less affected by President Trump’s 25 percent tariffs on vehicles than other automakers because most of the vehicles it sells in the United States are made in the country. General Motors said last week that the tariffs would increase its costs $4 billion to $5 billion this year.“We believe we are well positioned to adapt to the changes tariffs are driving in our industry,” Ford’s chief financial officer, Sherry House, said in a conference call.The company said the administration’s shifting tariff policies had the potential to disrupt to automotive supply chains, and they could force other nations to impose retaliatory tariffs on U.S. exports. It also noted further uncertainty in the Trump administration’s tax and emission policies.“We felt it prudent to suspend our full-year guidance,” Ms. House said.Ford previously said it expected earnings for 2025, before interest and taxes, to be $7 billion to $8.5 billion.The Trump administration has levied 25 percent tariffs on imported vehicles and auto parts. It has raised tariffs on imported steel and aluminum, which are used extensively in cars and trucks.Those and other tariffs imposed by Mr. Trump signify a major shift in U.S. trade policy, especially as it affects trade among the United States, Canada and Mexico. For decades, cars and auto parts have been shipped across North America with little or no tariffs.Ford makes a few vehicles in Mexico, including a key electric model, the Mustang Mach-E, and plans to start making heavy-duty pickup trucks in Canada in 2026. Ms. House said the automaker was not considering changing its heavy-duty truck plans.The company also reported that its profit in the first three months of the year fell to $471 million, from $1.3 billion a year earlier. Ford blamed lower vehicle sales because it had paused production at some factories to prepare for new models and made other changes aimed at reducing inventories of unsold cars and trucks.Its revenue in the quarter declined 5 percent, to $40.7 billion. Ford narrowed its loss on electric vehicles to $849 million from a loss of $1.3 billion a year earlier. Profit from selling mainstream, internal combustion vehicles fell to $96 million from $901 million. Profit from selling commercial trucks and related services declined to $1.3 billion from $3 billion. More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT Asia. In today’s newsletter:OpenAI abandons plan to convert to for-profit business Taiwan’s currency surges over trade deal fearsVatican-Beijing pact looms over papal frontrunnerOpenAI will remain under the control of the group’s non-profit arm, with the ChatGPT maker reversing course after intense criticism from Elon Musk over plans to convert into a for-profit company.What’s happening: The artificial intelligence company, which recently raised funds at a $260bn valuation, said it would convert its existing for-profit subsidiary into a public benefit corporation, lifting its current cap on returns that investors can receive, but would leave the non-profit with ultimate control. The non-profit will also receive a large stake in the public benefit company. Musk’s pressure campaign: The decision comes after a backlash to OpenAI’s proposed restructuring to a for-profit company, including a lawsuit from co-founder and tech entrepreneur Musk. The plan also faced widespread criticism from former employees and academics who study AI. OpenAI has been pursuing a simplified corporate structure in order to unlock greater investment. But critics argued that without the non-profit retaining control, it would not have an overarching responsibility to its founding mission: to ensure AI benefits humanity.Altman said yesterday that the decision to keep the non-profit in control was not motivated by outside pressure. “We’re all obsessed with our mission. You’re all obsessed with Elon.” Read more about OpenAI’s reversal.Here’s what else we’re keeping tabs on today:Economic data: Vietnam publishes April CPI inflation data, industrial output and trade balance figures. Thailand and the Philippines also report April CPI. US-Canada relations: Mark Carney will meet Donald Trump in Washington in an effort to revive a crucial trading relationship.Germany: Friedrich Merz will take office as chancellor.How should central banks navigate the new world order? Pose your questions about monetary policy to Chris Giles and other FT experts, and have them answered in a live Q&A on Wednesday.Five more top stories1. Taiwan’s currency has recorded its largest two-day jump in decades, as life insurers moved to hedge their exposed US portfolios and markets fretted that a trade deal with Trump might include the exchange rate. Taiwan’s President Lai Ching-te yesterday tried to quell speculation that the US had asked for the currency to appreciate. Here’s how the sudden currency movement could harm the island’s economy.2. Donald Trump’s threat to impose 100 per cent tariffs on films made abroad would be “devastating” for major Hollywood production hubs in countries including the UK, Canada, Australia and New Zealand, executives warned. But industry insiders also questioned how any tariff could work in practice, given films are not a physical good that passes a border when shown in US cinemas.Tariff fallout: US carmaker Ford said it expects a $1.5bn hit to this year’s operating profits because of Trump’s tariffs. Meanwhile toymaker Mattel is suspending financial guidance to investors and warning of higher prices for American consumers.US business vs tariffs: Trump’s damaging trade war sparked a lobbying campaign by the world’s most powerful business leaders. Did it work? 3. Israeli warplanes yesterday struck targets in Yemen, a day after a ballistic missile fired by Houthi rebels exploded near Israel’s main international airport. The Israel Defense Forces said the planes targeted the Hodeida port complex on the Red Sea, as well as a nearby concrete factory, which the IDF claimed were important sources of income for the Iran-backed Yemeni militant group. Here are more details.Gaza: The Israeli government has approved plans to escalate its offensive in the Palestinian enclave, including the possible full reoccupation of the territory.4. Brussels has proposed to make it easier for UK professionals to work in the EU through recognition of their qualifications. The plan, which is part of a new EU single market strategy due to be published this month, would accede to a key demand by London and help underpin a post-Brexit reset of relations between the two sides. 5. Private equity is past its peak and faces a huge challenge in selling off trillions of dollars in assets, Egyptian industrialist Nassef Sawiris has told the FT. The billionaire investor also took aim at the industry’s use of “continuation funds” to recycle capital, calling it “the biggest scam ever”.News in-depthPietro Parolin, centre, may struggle to gain the two-thirds majority of the 133 votes required to secure the papacy More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Ford said it expects a $1.5bn hit to this year’s operating profits due to Donald Trump’s tariffs, as the car industry continues to grapple with the implications of the US president’s trade policy.The Michigan carmaker, citing the uncertainty tied to the levies, on Monday also pulled the financial guidance it issued three months ago. Ford originally said it expected to earn an operating profit of between $7bn-$8.5bn for 2025.Ford said supply chain havoc from tariffs has the potential to cause industry-wide disruption in vehicle production. It also cited increased tariffs, changes in how they are implemented and the possibility other countries will retaliate as additional threats.“These are substantial industry risks, which could have significant impacts on financial results, and that make updating full-year guidance challenging right now given the potential range of outcomes,” it said.The global car industry is struggling to determine the impact of tariffs on vehicles and parts imported to the US, as for months the White House has changed policies and pushed out deadlines. Trump last week said parts imported from China would be exempted, as well as sparing carmakers from levies on steel and aluminium.Despite that reprieve, General Motors still lowered its guidance last week, citing tariffs. It said it expects adjusted operating earnings to fall between $10bn and $12.5bn, which places the midpoint of the guidance 23 per cent lower than the previous range.Ford is better positioned on tariffs than its crosstown rival as it manufactures a greater percentage of vehicles in the US, but it remains exposed. The company said it expected a hit to adjusted earnings of $1.5bn in 2025 due to the levies.Chief financial officer Sherry House said Ford had reduced the cost of tariffs during the first quarter by nearly 35 per cent through changes such as shipping vehicles and parts from Mexico to Canada on bonded trucks, which do not need to pay custom duties at the border.But Ford reported that first-quarter net income declined 64 per cent from a year ago to $471mn, while adjusted operating earnings fell to $1bn.Revenue fell 5 per cent to just under $41bn due to planned downtime at several plants worldwide, including the critical Kentucky Truck Plant that makes Ford’s Super Duty trucks.Ford shares were down 2.6 per cent in after-hours trading on Monday. More

Brussels has proposed to make it easier for UK professionals to work in the EU through recognition of their qualifications, in a move that would accede to a key demand by London and help underpin a post-Brexit reset of relations between the two sides.The European Commission will propose “legislation to establish common rules for the recognition and validation of qualifications and skills of third country nationals” next year, according to a draft document by the EU executive arm obtained by the Financial Times.The plan is contained in a new EU single market strategy due to be published this month and comes as the two sides thrash out how to improve relations ahead of a summit on May 19.British professionals have pushed since Brexit for the ability to work in the EU and UK chancellor Rachel Reeves has raised the matter in talks with her counterparts in the bloc.UK lawyers, bankers, engineers and other skilled workers will be among those hoping to benefit from the European Commission’s proposal for EU recognition of British professional qualifications. They would still need to secure visas from the EU member states they want to work in.The draft EU single market strategy document, drawn up by French internal market commissioner Stéphane Séjourné, could change before publication — and any legislation requires the approval of a weighted majority of the bloc’s member states and the European parliament.  Reeves has identified dismantling trade barriers thrown up after the UK left the EU in 2020 as a key priority to boost Britain’s sluggish economic growth.Reeves said last month the UK’s trading relationship with Europe was “arguably even more important” than that with the US. “It is so important that we rebuild those trading relationships with our nearest neighbours in Europe, and we’re going to do that in a way that is good for British jobs and British consumers,” she said.Sir Keir Starmer’s government is currently in talks with Donald Trump’s administration about a UK-US trade deal that could minimise American tariffs on British exports.At the UK-EU summit in London later this month, Starmer is expected to sign a defence and security pact with the bloc’s leaders, and the two sides are also due to adopt a declaration on shared values and foreign policy goals. The UK and the EU are also set to approve accelerated talks to improve the economic relationship.This could lead to a veterinary deal — another key demand by Starmer’s government — that would reduce EU checks on British agricultural products exported to the bloc, such as beef and cheese.Maroš Šefčovič, the EU trade commissioner responsible for UK relations, said on Monday “further work” was needed to secure a veterinary agreement. The EU wants to tie the length of such a deal to how long the UK agrees to preserve the bloc’s access to British fishing waters, which would otherwise end in June next year. And it is keen on a pact to allow EU nationals aged under 30 to live and work in the UK for up to three years, and vice versa. But London is wary of adding more immigrants to the UK’s official figures, even temporarily.The Commission said it did not comment on “leaked documents”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Mattel, the toymaker behind Barbie dolls and Uno card games, is suspending financial guidance to investors and warning of higher prices for American consumers as it confronts costs from US President Donald Trump’s tariffs.California-based Mattel on Monday said that the “volatile macroeconomic environment and evolving US tariff situation” had made it difficult to predict consumer spending and sales up to and including the crucial holiday season this year, prompting the pause in guidance. The $42bn US toy market has been caught in the middle of Trump’s trade war with China, whose exports to the country are subject to 145 per cent tariffs. Last week the president appeared to dismiss concerns over the potential impacts, saying that “maybe the children will have two dolls instead of 30 dolls . . . and maybe the two dolls will cost a couple of bucks more than they would normally”.Mattel said it was quickening efforts to diversify production away from China, make changes to its product sourcing and mix, and will look at raising prices for US customers.“We are accelerating plans to reduce China-sourced product in the US as part of our response to tariffs,” Ynon Kreiz, chief executive, said in an interview. “Pricing, in the actions that we’re taking, is the third in priority.” Kreiz declined to address Trump’s “two dolls” comments, which have sparked controversy.“We all know the importance of quality product and trusted brands in the industry and the importance of toys and play in children’s lives and children’s development,” Kreiz said. “So we are very committed to the uninterrupted supply of quality products at a wide range of affordable price points to children and families worldwide.”China accounts for 80 per cent of toys sold in the US, according to the Toy Association, a trade group. The 145 per cent tariff has led to anxiety and warnings of empty shelves from some manufacturers. Hasbro, the maker of Play-Doh modelling clay and Monopoly boardgames, has disclosed tariffs could raise costs by as much as $300mn this year, or about a fifth of its annual cost of goods.“Ultimately, tariffs translate into higher consumer prices, potential job losses as we adjust to absorb increased costs and reduced profits for our shareholders,” Chris Cocks, Hasbro’s chief executive, told analysts last month.Mattel has said that less than 40 per cent of its production was in China. Kreiz said Mattel would have one factory left there by the end of the year, down from four several years ago, and that he expected to strengthen the company’s competitive position as it manages around the tariffs.Mattel’s earlier guidance for 2 to 3 per cent net sales growth this year had taken into account Trump’s tariffs on Mexico, Canada and China announced in February, but not new tariffs imposed in April, which include the higher duties on China. Mattel said the tariffs had no effect on its performance in the first quarter. Net revenue defied Wall Street expectations for a decline by rising 2 per cent to $827mn.The company reported a net loss of $40mn, $2mn more than expectations and wider than the $28mn loss a year before, due to rising selling and administrative expenses. Mattel commonly reports a loss in the seasonally weak first quarter, but it has been profitable on an annual basis. More

Donald Trump’s threat to impose 100 per cent tariffs on films made abroad would be “devastating” for major Hollywood production hubs in countries including the UK, Canada, Australia and New Zealand, executives warned.The US film industry and cinema chains would also be hit hard, with studios likely to have to swallow much higher costs, and consumers could face higher ticket prices, executives and analysts said. Trump, the American president, said on Sunday night that he wanted to introduce a “100% tariff” on any movies coming into the US because “the Movie Industry in America is DYING a very fast death”, while other countries were using “incentives to draw our filmmakers and studios away”. Shares in Netflix fell 2 per cent on Monday, reflecting fears of higher costs, even though media executives questioned how the tariffs would work in practice.Claire Enders, a London-based media analyst, described the potential tariffs impact as “beyond devastating” for key production hubs, including the UK. “These are key services for the UK,” Enders said. “We have been making movies in tandem with the US for 100 years.”Enders added that this was one of the first times that Trump had targeted services through his tariff plans, which would raise fresh worries for services-led economies such as the UK. Matthew Deaner, chief executive of Screen Producers Australia (SPA), said tariffs would “send shockwaves” through the film industry worldwide.But executives also questioned how any tariff could work in practice, given films are often now distributed globally on streaming platforms and are not a physical good that passes a border when shown in US cinemas.“In what sense can you put a tariff on a Netflix show made in the UK and distributed worldwide over the internet?” said Peter Bazalgette, former chair of British broadcaster ITV and an adviser on the creative industries to the UK government.Actor Robert Downey Jr at the 2024 Comic-Con International in San Diego, California. The US state has its own financial offers to lure filmmakers More