Ad valorem (AV) tariffs—percentage-based duties applied to the declared import value of a good—are effective at generating revenue. However, due to weak customs valuation laws, AV tariffs are especially vulnerable to trade fraud when applied to goods of low-value that are imported at high volumes.
Specific and compound tariffs can offer a solution in these situations, as they are applied as fixed per-unit charges (e.g. $1/kg) that customs authorities can assess simply by examining the cargo, making them harder to manipulate, and well-suited for national security or other protective actions.
AV tariffs, specific tariffs, and compound tariffs are all grounded in American trade history, having served as the cornerstone of U.S. industrial policy and revenue generation since the country’s founding — a tradition worth reviving to meet today’s strategic challenges.
The two Trump Administrations have reshaped the debate on U.S. trade policy. For the first time in decades, U.S. officials are no longer endorsing the “free trade” orthodoxy that has contributed to the erosion of its manufacturing sector. Instead, tariffs are now the centerpiece of U.S. plans to repatriate supply chains and reindustrialize America.
This is a welcome development. So far, however, tariff actions have been limited to supplemental AV tariffs. These are tariffs that assign duties as a percentage assessed against the importer’s declared transaction price.
AV tariffs are the most commonly deployed relief against unfairly priced foreign imports (i.e. anti-dumping and countervailing duty (AD/CVD) cases). In addition, they featured prominently in both the Trump and Biden Administrations’ national security tariffs—imposed under Section 232 and 301 of the Trade Expansion Act of 1962 and the Trade Act of 1974—respectively.
However, depending on the product, other types of tariffs may be more appropriate to meet protective objectives. Two examples explored in this article are specific tariffs and compound tariffs.
Ad Valorem Tariffs: the Good and the Bad
AV tariffs are an excellent tool to raise revenues to meet budgetary needs. For example, CPA analysis finds that a 10% baseline AV tariff could generate $263 billion, which could finance a tax refund for lower-income households.
AV tariffs can also be appropriate for products of high-value and high specificity, as these products are less susceptible to invoice manipulation. In contrast, goods of low-value that are traded in high volumes are most prone to circumvention and trade fraud.
For example, steel conduit-–has found little relief from the AV duties, with imports more than doubling since 2017 as Mexico blew past its agreed 2015-2017 level export limit, indicated in the chart below. Nearly all of the increase has come from Mexico, where production is increasingly linked to Chinese inputs and ownership.
Likewise, import penetration for steel pipe and tube products remains high, particularly in standard, structural, and stainless categories.
Why AV Tariffs are More Subject to Trade Fraud
The structure of AV tariffs, which are based on importers’ self-reported invoice values, generates substantial incentives — and ample opportunity — for fraud. Over the past two years, Chinese logistics networks have institutionalized schemes to evade U.S. tariffs through mispricing, transshipment, and shell importer manipulation. These practices are now central to the business model of tens of thousands of cross-border e-commerce and freight firms.
Common evasion strategies include:
InvoiceUndervaluation: Importers declare artificially low prices on goods to reduce the AV duty owed. Chinese sellers routinely offer “duty-included” shipping, covering U.S. tariffs by grossly understating invoice values. Such actions have resulted in data gaps and missing revenues, with as much as $130 billion in mismatched U.S. imports from China in 2023 alone, as noted in the figure below.
Double invoicing and other customs fraud: Logistics providers issue one invoice for customs and a second for “services” like marketing or consulting — allowing the true value of goods to be concealed.
Currency Undervaluation: In 2018, after President Trump first imposed his Section 301 tariffs on Chinese imports, China promptly devalued its currency by 10% from March 2018 through the end of 2019, neutering the impact.
Transshipment: Goods are routed through countries like Mexico, Vietnam, or Malaysia and mislabeled as locally produced, bypassing China-specific duties. One notable example is kitchen cabinet imports from China, which were subject to tariffs under both the Trump and Biden Administrations that reached as high as 262% in 2020. China responded by relocating operations to Southeast Asian countries, led by Vietnam, Malaysia, and Thailand as noted in the figure below.
Shell importers: Chinese companies register as U.S. importers of record through temporary shell entities that do not conduct any real business operations like manufacturing or design.
De minimis abuse: Chinese e-commerce firms like Shein and Temu exploit the $800 de minimis threshold to ship over 1 billion small packages annually into the U.S. duty-free, bypassing tariffs, inspections, and regulatory oversight.
AV Tariffs for Steel Section 232 Tariffs Were Partly Effective
The limitations of the AV approach can be observed in the steel sector. Since March of 2018, the U.S. has imposed national security tariffs on steel articles at an AV rate of 25%, which increased to 50% in March of 2025. Yet, U.S. imports of these products have remained elevated, exceeding the nine-year average prior to the Section 232 investigation.
While this outcome highlights the structural weakness of AV tariffs in dampening low-value, high-volume imports, it also reflects enforcement challenges: the extensive granting of country exemptions—particularly no-limit exemptions to key suppliers like Mexico and Canada—undermined the effectiveness of the policy. In this context, the experience suggests that tariff effectiveness depends not only on rate structure, but also on how comprehensively and consistently it is applied.
Specific Tariffs: A More Enforceable Alternative
Unlike AV tariffs, specific tariffs impose a fixed duty per unit, weight, or volume. This removes the incentive to misprice goods and makes customs enforcement far more straightforward.
For example, rather than levying a 25% duty on a declared $1,000 steel pipe shipment — which can be undervalued to $600 — a specific tariff would impose a $300-per-ton duty regardless of the invoice. Customs officials can weigh and measure cargo. Tonnage doesn’t lie.
Advantages of specific tariffs:
Fraud-resistant: Hard physical metrics are difficult to falsify, eliminating the incentive to manipulate invoice values.
Stable and predictable: Specific tariffs are unaffected by commodity price swings, offering consistent protection for domestic producers.
Broadly applicable: Specific tariffs work across sectors — from industrial metals to consumer goods — and can be adapted into compound tariffs for volatile commodities like copper, for example.
Aligned with U.S. trade history: Specific and compound tariffs were the backbone of American economic policy throughout the 19th and early 20th centuries, protecting industry, generating federal revenue, and supporting the industrialization of the U.S. economy.
Compound Tariffs: The Best of Both Worlds
Under certain conditions, where both value and quantity affect pricing, a compound tariff—which combines the structure of both AV and specific tariffs—can provide appropriate protection. Take the example of copper.
Since the beginning of 2025, differences between copper prices in the U.S. market—as set by the COMEX exchange—has deviated from the world price established on the London Metal Exchange (LME) by more than $900 per metric ton. This has created arbitrage opportunities for traders to buy copper on the global market at the LME price and then sell it on the U.S. market for a higher profit.
For example, in April alone, the U.S. imported over 200,000 metric tons of refined copper—a principal input in the production of semi-finished copper products (e.g. bars, rods, plates, sheet, etc), as shown in the figure below.
This was the highest imported monthly volume of the decade. Moreover, U.S. warehouse stocks with foreign imports have doubled year-to-date, while global inventories have been reduced to a two-year low, as traders exploit the cost advantage created by the divergence between the COMEX and LME prices in the U.S. market.
For U.S. semi-fabricators of copper, this has meant soaring input costs, as they are forced to acquire refined copper at inflated COMEX prices, while selling their products into foreign markets that are priced at the lower LME value.
At the same time, U.S. copper and brass mills remain at risk of being undercut by foreign exports of semi-finished products. This is an especially acute concern, given that prices for refined copper —which are priced according to the LME—have plunged amid excess Chinese production flooding global markets.
In this instance, a compound tariff that applies a high, 50% AV duty rate plus an $800/metric ton specific rate could provide both sufficient protection for underpriced semi-finished imports and discourage copper arbitrage.
Conclusion
The United States is on the verge of a major realignment in trade policy. The 10% universal baseline AV tariff, expanded Section 232 measures, and existing Section 301 tariffs reflect a growing recognition that tariffs can be both protective and strategic. But the structure of these tariffs will determine their effectiveness.
Ad valorem tariffs, while effective in certain contexts—particularly for economy-wide revenue collection— are less appropriate when administering duties for national security objectives.
In such contexts, they are often vulnerable to evasion, transshipment, and invoice manipulation, for example. To close loopholes, deter fraud, and defend American industry, the U.S. must return to the specific tariff structures that worked in the past and are even more essential today, while also deploying compound tariffs when appropriate.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
How to Make Tariffs Work for National Security, Enforcement, and Revenue
KEY POINTS
The two Trump Administrations have reshaped the debate on U.S. trade policy. For the first time in decades, U.S. officials are no longer endorsing the “free trade” orthodoxy that has contributed to the erosion of its manufacturing sector. Instead, tariffs are now the centerpiece of U.S. plans to repatriate supply chains and reindustrialize America.
This is a welcome development. So far, however, tariff actions have been limited to supplemental AV tariffs. These are tariffs that assign duties as a percentage assessed against the importer’s declared transaction price.
AV tariffs are the most commonly deployed relief against unfairly priced foreign imports (i.e. anti-dumping and countervailing duty (AD/CVD) cases). In addition, they featured prominently in both the Trump and Biden Administrations’ national security tariffs—imposed under Section 232 and 301 of the Trade Expansion Act of 1962 and the Trade Act of 1974—respectively.
However, depending on the product, other types of tariffs may be more appropriate to meet protective objectives. Two examples explored in this article are specific tariffs and compound tariffs.
Ad Valorem Tariffs: the Good and the Bad
AV tariffs are an excellent tool to raise revenues to meet budgetary needs. For example, CPA analysis finds that a 10% baseline AV tariff could generate $263 billion, which could finance a tax refund for lower-income households.
AV tariffs can also be appropriate for products of high-value and high specificity, as these products are less susceptible to invoice manipulation. In contrast, goods of low-value that are traded in high volumes are most prone to circumvention and trade fraud.
For example, steel conduit-–has found little relief from the AV duties, with imports more than doubling since 2017 as Mexico blew past its agreed 2015-2017 level export limit, indicated in the chart below. Nearly all of the increase has come from Mexico, where production is increasingly linked to Chinese inputs and ownership.
Likewise, import penetration for steel pipe and tube products remains high, particularly in standard, structural, and stainless categories.
Why AV Tariffs are More Subject to Trade Fraud
The structure of AV tariffs, which are based on importers’ self-reported invoice values, generates substantial incentives — and ample opportunity — for fraud. Over the past two years, Chinese logistics networks have institutionalized schemes to evade U.S. tariffs through mispricing, transshipment, and shell importer manipulation. These practices are now central to the business model of tens of thousands of cross-border e-commerce and freight firms.
Common evasion strategies include:
AV Tariffs for Steel Section 232 Tariffs Were Partly Effective
The limitations of the AV approach can be observed in the steel sector. Since March of 2018, the U.S. has imposed national security tariffs on steel articles at an AV rate of 25%, which increased to 50% in March of 2025. Yet, U.S. imports of these products have remained elevated, exceeding the nine-year average prior to the Section 232 investigation.
While this outcome highlights the structural weakness of AV tariffs in dampening low-value, high-volume imports, it also reflects enforcement challenges: the extensive granting of country exemptions—particularly no-limit exemptions to key suppliers like Mexico and Canada—undermined the effectiveness of the policy. In this context, the experience suggests that tariff effectiveness depends not only on rate structure, but also on how comprehensively and consistently it is applied.
Specific Tariffs: A More Enforceable Alternative
Unlike AV tariffs, specific tariffs impose a fixed duty per unit, weight, or volume. This removes the incentive to misprice goods and makes customs enforcement far more straightforward.
For example, rather than levying a 25% duty on a declared $1,000 steel pipe shipment — which can be undervalued to $600 — a specific tariff would impose a $300-per-ton duty regardless of the invoice. Customs officials can weigh and measure cargo. Tonnage doesn’t lie.
Advantages of specific tariffs:
Compound Tariffs: The Best of Both Worlds
Under certain conditions, where both value and quantity affect pricing, a compound tariff—which combines the structure of both AV and specific tariffs—can provide appropriate protection. Take the example of copper.
Since the beginning of 2025, differences between copper prices in the U.S. market—as set by the COMEX exchange—has deviated from the world price established on the London Metal Exchange (LME) by more than $900 per metric ton. This has created arbitrage opportunities for traders to buy copper on the global market at the LME price and then sell it on the U.S. market for a higher profit.
For example, in April alone, the U.S. imported over 200,000 metric tons of refined copper—a principal input in the production of semi-finished copper products (e.g. bars, rods, plates, sheet, etc), as shown in the figure below.
This was the highest imported monthly volume of the decade. Moreover, U.S. warehouse stocks with foreign imports have doubled year-to-date, while global inventories have been reduced to a two-year low, as traders exploit the cost advantage created by the divergence between the COMEX and LME prices in the U.S. market.
For U.S. semi-fabricators of copper, this has meant soaring input costs, as they are forced to acquire refined copper at inflated COMEX prices, while selling their products into foreign markets that are priced at the lower LME value.
At the same time, U.S. copper and brass mills remain at risk of being undercut by foreign exports of semi-finished products. This is an especially acute concern, given that prices for refined copper —which are priced according to the LME—have plunged amid excess Chinese production flooding global markets.
In this instance, a compound tariff that applies a high, 50% AV duty rate plus an $800/metric ton specific rate could provide both sufficient protection for underpriced semi-finished imports and discourage copper arbitrage.
Conclusion
The United States is on the verge of a major realignment in trade policy. The 10% universal baseline AV tariff, expanded Section 232 measures, and existing Section 301 tariffs reflect a growing recognition that tariffs can be both protective and strategic. But the structure of these tariffs will determine their effectiveness.
Ad valorem tariffs, while effective in certain contexts—particularly for economy-wide revenue collection— are less appropriate when administering duties for national security objectives.
In such contexts, they are often vulnerable to evasion, transshipment, and invoice manipulation, for example. To close loopholes, deter fraud, and defend American industry, the U.S. must return to the specific tariff structures that worked in the past and are even more essential today, while also deploying compound tariffs when appropriate.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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