Trump has directed Pete Hegseth to significantly cut joint military drills with South Korea, stating his dissatisfaction with past US agreements to participate in such exercises. Trump also cited his 'very strong ties' with Kim Jong Un of North Korea in connection with the decision.

Key details of the directive

The directive targets joint military drills conducted with South Korea, which Trump described as agreements the US 'long ago agreed to join.' The instruction was issued directly to Hegseth, with the stated goal of significantly reducing the scale of these exercises.

Trump's reference to his relationship with Kim Jong Un signals the geopolitical context underlying the decision, linking the reduction in allied military activity to his engagement with North Korea's leadership.

The Trump White House accused China on Thursday of using third countries to disguise the origin of exports and evade U.S. tariffs, estimating the practice costs Washington $19 billion to $26 billion in tariff revenue annually. While the administration released a 25-page report titled "The Great Transshipment Scam," industry experts argue that the tariffs themselves have created a powerful incentive for such evasion.

Ryan Petersen, CEO of supply chain management platform Flexport, stated that the high tariff rates drive companies to find ways around them. "The tariffs have created a huge incentive," Petersen said. "If your tariff was 0%, there’s no need to commit fraud; there’s no tariffs to evade." He added that rising costs motivate companies to alter trade practices, including misrepresenting product value, classification, or country of origin.

Trade Flow Divergence and Data Gaps

The allegations highlight a significant shift in global supply chains. Direct U.S. imports from China fell to a 16-year low of $308.7 billion in 2025. Conversely, imports from Mexico and Vietnam climbed during the same period. Chinese exports to the U.S. plunged 43% year over year in May 2025, while shipments to Vietnam and Indonesia jumped.

A Commerce Department analysis estimated roughly $67 billion in U.S.-bound goods moved from China through Mexico, India, and Vietnam in 2025. This rerouting resulted in about $28 billion in lost tariff revenue, according to the administration's central case which assumes $75 billion of annual illegal transshipment.

New data suggests the scale of potential evasion could be significantly larger than the White House estimate. Data from China’s General Administration of Customs and the U.S. Census Bureau showed a $112 billion discrepancy between what China reported shipping to the U.S. and what the U.S. reported receiving last year. The gap does not by itself prove $112 billion in tariff fraud, but it highlights the potential scale of discrepancies in China-U.S. trade flows.

Enforcement and AI Tools

The White House is developing an AI-enabled "Detective Border" for Customs and Border Protection to analyze routing histories, cargo images, and ownership links. Trump’s June executive order separately tightened importer disclosure and bonding requirements. The administration stated that the age of untraceable illegal transshipment is over.

The crackdown comes as the administration argues that tariff dodging not only reduces federal revenue but also puts companies that comply with U.S. trade rules at a competitive disadvantage. The report places Canada, the European Union, India, Israel, Japan, Mexico, South Korea, and Taiwan in its highest-risk tier, while acknowledging legitimate trade flows.

This release comes before Chinese President Xi Jinping’s planned September U.S. visit, following May talks that produced new U.S.-China trade and investment boards. China’s embassy rejected efforts to target its interests, saying Beijing would "resolutely take necessary measures to safeguard its legitimate rights and interests."

What the Numbers Show

The data reveals a sharp divergence between direct trade volumes and transshipment activity. While direct exports from China to the U.S. dropped by 43% in May 2025, the Commerce Department identified $67 billion in goods moving through third countries like India and Vietnam. This suggests that a substantial portion of Chinese export volume is being redirected through intermediate hubs rather than disappearing from the U.S. market entirely. The $112 billion reporting discrepancy further underscores the complexity of tracking these flows, indicating that official customs data may understate the true volume of goods entering the U.S. via indirect routes.

Broader Economic Context

Beyond trade tensions, financial markets saw significant shifts this week regarding monetary policy and economic structure. The likelihood of a September interest-rate hike by the Federal Reserve under Kevin Warsh’s leadership has dwindled to around 25% on Polymarket, down from roughly 60% earlier in the month. Markets are beginning to separate short-term monetary-policy outlooks from long-term structural forces keeping bond yields high.

Treasury Secretary Scott Bessent declared that the U.S. economy is moving beyond the K-shaped divide, suggesting a "C-economy" is emerging with lower-income workers regaining ground. However, political concerns persist regarding fiscal health. Florida Governor Ron DeSantis attributed the failure of the Department of Government Efficiency (DOGE) to Congress’s inability to implement budget reductions, citing a record July budget deficit of $432 billion. Senator Rand Paul argued that affordability concerns are fundamentally an inflation problem driven by the federal deficit and Federal Reserve monetary policy.