00:02:26 · Ryan Petersen
It's probably, like, 80% of the cost of this thing is crossing the border illegally. But actually, Incoterms are back in the news because there's a huge amount of fraud happening right now. With with tariffs... With Trump's tariffs, they've created this enormous incentive to cheat. And, you know, the markets find a way. They're gonna cheat. People will... Especially entrepreneurs whose backs are against the wall and might lose everything will often cheat. And that's what we see. It's an enormous amount of fraud happening. In fact, a lot of it is just Chinese merchants just selling on Amazon. And the fraud looks like this. In the old day, pre tariffs, it was a couple percent. You didn't bother. And so you just import it. You pay the duties. You didn't cheat. Mean, I there was probably some cheating, but it wasn't rampant. Now when tariffs have gone to 35, at peak, were like 150% for a few weeks. But right now, it's about 35% on most goods. That's a big incentive to to lie about the value of the goods because it's 35% of whatever you tell the government the value of the goods is. And so people are just lying, and they're saying, hey. This thing is a 100,000. No. It's 10,000. And now instead of paying 35% tariff, I pay three and a half percent and back where I was before. And that is absolutely rampant right now. In fact, Amazon has become the number one freight forwarder in the... People don't know this, actually. I haven't seen it reported with breaking news here. They're the now the number one freight forwarding company on the Trans Pacific Asia to The US. And it's because of the... My theory is allegedly, I allege, it's allegedly, just a huge amount of fraud that's happening with these merchants who sell on Amazon, all these companies with their brand name of like XYZ forty seven fifty, you know, like these crazy names. They're just lying and they're undercutting everybody on price, because of it. Yeah. There's always incentive to cheat, whether you're Escobar or some Chinese merchant.
00:04:21 · Ty Morse
[00:04:21] S0: On the matter of incentives, I think it's incredibly important to get the incentives right. And how did things get this bad?
00:04:30 · Ryan Petersen
[00:04:30] S1: Well, The United States is the only... Actually there's two countries in the world that really allow anybody to import goods into their country almost unrestricted. It's The United States and The UK. And I don't know if we... It doesn't come from British common law. These these things evolve separately. We we... We've... I don't know when it really started in The US. It's not codified into the statute, but it is... We allow it. So what does that mean? In every other country in the world, besides those two, you need to go create a local entity, whether it's an LLC, a C Corp, or a sole proprietor who's in The United States would import the goods in their name. And in The United States, that's not required. You can just import stuff into The United States as a foreign company with no domestic presence whatsoever. You can just register with CBP and just import the goods. And you are the importer even though you're a foreign company. Therefore, we have no ability to enforce what these people do. It's an honor system. Like most law depends on consequences if you're caught. Mean, I people will still cheat, but at least there's consequences. It reduces the cheating quite a bit. But if you know nothing can ever happen to me because the United States government does not have jurisdiction agents. We don't have trade compliance agents in other countries, so we cannot go after them. We can refer them to the Chinese government for prosecution. That's the best we can do if they cheat. So it's open season. And actually, pulled this data. The Chinese government publishes their export statistics to The United States, and they show a $112,000,000,000 higher export value than what those same goods show up as when they're declared to the US government upon import. A 120... That was for 2025, a $120,112,000,000,000. It's gonna go up, further until something's done about this. So, it's it's just an insane situation, which could be very, very easily fixed. Now it wouldn't ever go away, but you simply say, Hey, you have to be a US entity. It could be a wholly owned foreign entity, but you got to set up an LLC, have a US bank account, go through some kind of KYC process, know your customer who is this entity, and have consequences if you're caught cheating. But, haven't been able to get anybody in Washington DC to pay any attention to this issue thus far.
00:06:51 · Ryan Petersen, Ty Morse
They're all very busy with other things. I'm... I think I I spent a lot of time in DC lobbying on this issue. Lobbying is kind of a strong word, just talking to the administration. [00:07:02] S0: Trying to let people know that [00:07:03] S1: there's a problem. Yeah. And everybody kind of smiles and nod. Yeah. Like, you know, I hear you. Like, that definitely sounds bad. Then nothing happens in between. I think I need to reframe my efforts a little bit. It's actually a good object lesson in persuasion for me. So I'm used to like show people a problem and then you would think that would be enough for them to wanna fix the problem. [00:07:27] S0: Well, it's kinda funny. Like, there's that line of you can't reason people out of an idea or belief system that they weren't reasoned into. And so if you give them facts and evidence and they weren't reasoned into it in the first place, it doesn't necessarily change their opinion.
00:07:39 · Ryan Petersen
[00:07:39] S1: Yeah. And there's something about understanding what their incentives are. What are they trying to do? What are they... It's... What... Do they care that American businesses are being hurt? Not really. Do they care that The US... $112,000,000,000 at a 35% duty rate. It's $35,000,000,000 for the government, but they don't care. They have a money printer. So why do they care about that? So what is it that they care about? I don't know. I'm trying to reframe it. It's probably about national security. I mean, is... It's absurd from a national security standpoint too because you can just import anything into the country. Anything. Fentanyl, bombs. I mean, yeah. Sure. Like, if we catch you, we might come after you, but we're not. We're not going after the people importing fentanyl into the country. They they let them go. So I think if you frame it that way, it might help a little bit being like, look, you can't let foreign companies just import stuff with no presence. I might be talking to the wrong people. I mean, the IRS also probably presumably cares more about collecting taxes. These, these country, these companies pay no income tax either. Right? Cause all the profit is now made offshore. Whereas if they imported it and then sold it, there would be a profit recognized, in The United States, they'd have to pay income tax. So I don't know. This has been a frustration of mine. I've spent... I've been in the DC, like, once a month for the last half a year or so trying to get people to pay attention to this issue.
00:08:58 · Ty Morse, Ryan Petersen
[00:08:58] S0: I know that you've studied a huge amount of, like, the history of global trade. So let's just start off on Dutch East India Company. You know, how did how did this thing get started? [00:09:08] S1: Well, Dutch East India Company was the world's first, joint stock company. And it's a quite interesting thing because the Dutch were a province of the Spanish, the Habsburg Spanish empire. The Netherlands was a province of Spain. You had the Protestant Reformation, the revolution, and there was a big war fought, Spanish Inquisition, and they managed to get independence. One of the first things they did was they had these fleets and they started raiding the Spanish, and actually it was more the Portuguese empire, but for a period there, Spain and Portugal had merged through marriage. So it was one empire trading both the Indies and The Americas for a brief period. And the Dutch during this time started sailing there, raiding sort of as pirates, and it became very, very profitable. They ended up basically taking over. And once they took over, you had more of a commercial aspect to this and an emergence of many different companies that were trading, and it became unprofitable. The competition was bad [00:10:20] S0: for And