House China Panel Probes DHS on Enforcing Trade Fraud Penalties

Subcommittee chairman Rep. Mike Gallagher (R-Wis.) speaks during a House Armed Services Subcommittee on Cyber, Information Technologies, and Innovation hearing about artificial intelligence on Capitol Hill in Washington on July 18, 2023. (Drew Angerer/Getty Images)

A House China panel asked the Department of Homeland Security to explain how it investigates and catches Chinese companies that evade tariffs with trade fraud.

In a letter to DHS Secretary Alejandro Mayorkas on Friday, House Select Committee on China Chair Mike Gallagher (R-Wis.) and member Rep. Darin LaHood (R-Ill.) alleged China’s Qingdao Sunsong, a Chinese manufacturer of automotive fluid transfer hoses and lines, as being one such perpetrator.

“Reviews of Qingdao Sunsong’s public disclosures lay out a case of blatant trade fraud that is having a catastrophic impact on American manufacturers,” they wrote. “Indeed, one American company has been compelled to accumulate significant debt, divest itself of two business divisions, and most recently lay off one-quarter of its workforce due to Sunsong’s trade fraud.”

“If swift action is not taken, the affected company will be forced to permanently cease its operations,” the congressmen warned.

When Sunsong sought to go public on the Beijing Stock Exchange (BSE) late last year, the company discussed how it avoided U.S. tariffs on its exports.

According to a disclosure document (pdf) filed with BSE in October 2022, Sunsong said its auto parts manufactured in China had been subject to a 25 percent tariff since 2018. The company said it expanded its production footprint in Thailand and has been using it to export to the United States since 2021 “in order to lower the tariff costs.”

In addition, the filing shows that the Thailand step on a Sunsong product’s journey from China to the United States seems to provide value-added below 10 percent. That is much lower than the minimum 35 percent required to qualify for a “substantial transformation” for products originally from China to be considered “made in Thailand” for tariff purposes.

The Epoch Times has contacted Qingdao Sunsong for comment.

Shipping containers wait to be transferred from the ports of Los Angeles and Long Beach on Oct. 14, 2021. (John Fredricks/The Epoch Times)

The tariffs are generally referred to as “Section 301 tariffs” because the Trump administration launched them by using Section 301 of the Trade Act of 1974, aimed at investigating and addressing unfair practices of trade partners. The Biden administration has kept the tariffs in place.

“We are concerned that this type of trade fraud is commonplace in today’s economic environment and companies are engaging in these practices to effectively evade the United States’ tariff regime,” the lawmakers stated in their letter to DHS.

At an August hearing about China’s threat to American manufacturing, Mr. Gallagher said: “China underprices and dumps, and that has had devastating consequences for manufacturing, American workers, and economic security. Tariffs, when applied strategically to China, reduce reliance on China and increase domestic manufacturing.

“Targeted economic incentives to narrowly defined sectors can strengthen our economy and national security and countervailing duties can be used to level the playing field.”

The Epoch Times has contacted DHS for comment.