As tariff hikes reshaped global trade in 2025, some firms turned to transshipment, reclassification, and first-sale pricing to sidestep rising costs. A new Michigan State University study reveals the economic drivers behind these gray-zone trade tactics, and the growing compliance risks they now pose in an era of stricter enforcement and expanding digital oversight.
When Workarounds Cross the Line
Facing tariff rates that briefly surged to 145% on certain Chinese goods, companies under pressure turned to aggressive mitigation strategies. According to a new Michigan State University (MSU) study, this included a spike in illicit transshipment. where goods made in one country are routed through another to disguise origin and avoid duties, along with the use of gray-zone practices like reclassification and the “first sale” rule.
The MSU research, authored by Jason Miller, Yao “Henry” Jin, and David Ortega, presents a structured framework for understanding how firms respond to tariff shocks. One critical dimension is misconduct. Unlike most supply chain literature, the framework explicitly incorporates illegal or borderline-legal responses as part of the behavioral landscape triggered by extreme cost and timing pressures. Misclassification of goods, manipulation of certificates of origin, and routing products through countries with favorable trade agreements have all seen renewed activity, particularly where enforcement gaps exist.
Public datasets such as the UN Comtrade and World Bank’s WITS are already showing red flags, abrupt increases in trade flows between non-traditional partners, often inconsistent with prior sourcing patterns. For example, a sudden uptick in textile exports from countries not historically strong in apparel production suggests transshipment may be at play. In some cases, containerized goods are relabeled in free trade zones before entering the U.S., masking their Chinese origin and lowering the applicable tariff rate.
Compliance Pressure Meets Operational Stress
The study frames these behaviors not as aberrations but as economically rational responses to what it calls “adjustment costs” and “opportunity costs of responding late.” When the cost of shifting production or renegotiating supplier terms is too high or time-consuming, firms may see gray-zone options as their least bad choice.
Yet the long-term risks are mounting. Firms found violating origin rules face not only back duties but also fines, brand damage, and revocation of participation in preferential trade programs. In high-stakes sectors like electronics, auto parts, and textiles, where component sourcing is often complex, compliance blind spots can emerge quickly. Companies relying on manual documentation or incomplete supplier declarations may already be exposed without realizing it.
To mitigate this, supply chain compliance teams are turning to digitized trade visibility platforms that trace goods at the item level across borders. These systems, often built on blockchain or AI-enhanced rule engines, can flag anomalies in declared origin, track value-add thresholds during transshipment, and validate product classifications against historical norms. Several trade tech providers are also partnering with customs authorities to streamline trusted trader programs, giving compliant firms faster clearance and lower audit exposure.
A Harder Line on Soft Tactics
The MSU study serves as a warning: when tariffs surge, enforcement will follow. Customs agencies worldwide are under pressure to investigate and prosecute circumvention schemes, especially as trade wars enter the political spotlight. While the savings from misclassification or rerouting may offer short-term relief, they now carry a far higher reputational and regulatory cost. Firms investing in transparent, verifiable sourcing will be better positioned not only to weather enforcement crackdowns, but to unlock operational agility in an environment where trade rules change faster than capacity can.
