Additional tariffs imposed by the Trump administration caused U.S. customs revenue to surge to $215.24 billion in fiscal year 2025, an increase of nearly $120 billion compared to 2024 and almost $100 billion higher than the 2022 peak of $117.49 billion. The burden is disproportionately falling on domestic retailers while foreign competitors exploit what Flexport CEO Ryan Petersen describes as “massive” customs fraud.In a recent interview with technology show TBPN, Petersen exposed the mechanics of the problem: “The U.S. is the only country that allows foreign companies to import goods into the country, with no legal entity, no requirement to have an employee locally. You can just import stuff into the country as a foreign company. And then you just lie on your declarations. These companies just cheat and there’s basically no consequence.”The implications are stark. While U.S. retailers face both higher wholesale costs and higher tariffs on those marked-up prices, foreign sellers importing directly can seemingly understate values on customs declarations with impunity. Combined with their structural cost advantages from manufacturing proximity and government subsidies, the result is a double competitive advantage for Chinese sellers that tariffs were ostensibly designed to eliminate.Major U.S. retailers are already counting the cost. Nike projects $1.5 billion in tariff-related expenses, up from $1 billion just three months ago. Apple estimated $1.1 billion in tariff costs for a single quarter back in August. These companies have resources to absorb such shocks through stockpiling and strategic planning. Smaller domestic retailers, already struggling to compete with Chinese sellers who now represent over 50% of all Amazon sellers, lack such buffers.History shows these costs land squarely on American consumers and businesses. A Journal of Economic Perspectives study of 2018 tariffs found they were “almost completely passed through into U.S. domestic prices,” meaning American consumers and importers, not Chinese exporters, paid the cost. The current surge to $215 billion in customs revenue represents the same dynamic at an unprecedented scale.The enforcement gap Petersen identifies isn’t theoretical. With hundreds of thousands of foreign sellers on U.S. marketplaces and minimal customs verification infrastructure, the opportunity for fraud is vast. Meanwhile, legitimate U.S. importers bear the full weight of escalating duties on accurately declared values.Last week, President Trump threatened to add an additional 100% tariff on top of existing China rates, potentially starting on November 1, epitomizing the planning nightmare facing businesses. With less than three weeks’ notice of potential implementation, importers with product on the water face impossible choices during retail’s busiest season. The administration’s subsequent equivocation – suggesting the increase may not happen after all – only compounds the chaos.Rather than leveling the playing field, this tariff strategy continues to intensify the very advantages it aimed to eliminate. Chinese sellers are paying lower duties on their lower costs, while many pay even less through fraudulent declarations. U.S. retailers are paying higher duties on higher wholesale prices while operating within the law.The solution requires addressing the policy gap that enables this disparity. As international trade attorney Charles Benoit notes, “With de minimis repealed, the magnitude of the NRI (non-resident importer) problem has exploded. We must shut it down. People who make customs declarations need to be accountable, and that means RESIDENT.”Without reforming non-resident importer policies to require domestic legal entities and enforcement accountability, the $120 billion in additional customs revenue will continue flowing primarily from compliant U.S. businesses while foreign competitors circumvent the system entirely. Tariffs alone won’t save American e-commerce – but closing enforcement loopholes might actually help.