Avoidance Behaviors of Exporters and Importers : Evidence from the U.S.-China Trade Data Discrepancy

Since the late 1990s, reported U.S. imports from China and Hong Kong have regularly and increasingly exceeded reported exports of China and Hong Kong to the United States. This discrepancy, which is not caused by re-exporting through Hong Kong, varies by product categories, and in some cases takes the opposite sign. In this paper, we focus on China's direct exports to the United States, and find strong statistical evidence of underreporting exports at Chinese border to avoid paying value-added tax (VAT). There is also indirect evidence of transfer pricing (i.e. overreporting at U.S. border to avoid higher U.S. corporate income tax for U.S. based multi-nationals) and avoidance of Chinese capital controls (i.e. money-laundering). We also provide evidence that tariff evasion at the U.S. border tends to take the form of underreporting unit values for differentiated products