A bizarre economic phenomenon is taking hold in EU-US trade: “defensive overpayment.” Faced with impossibly complex rules and catastrophic penalties, some European companies are now deliberately overpaying their US tariffs. This counterintuitive strategy has become a rational, if costly, response to a dysfunctional trade environment.
The practice was brought to light by German MEP Bernd Lange, who described a motorcycle manufacturer that declares a higher percentage of metal content than it likely has. The company knows its steel and aluminum content is between 30-50%, but to be safe, “they declare 50%.”
Why would a company voluntarily pay more tax than required? The answer lies in risk management. The US has imposed a 200% penalty tariff for misdeclaration. For the German motorcycle firm, the small, certain cost of overpaying on its declaration is vastly preferable to the huge, uncertain risk of being found non-compliant.
This practice is a powerful indictment of the current US trade policy. It suggests the rules are so vague and the penalties so draconian that the system no longer incentivizes accuracy, but rather extreme, risk-averse behavior. It creates economic inefficiency and punishes firms that are attempting to trade in good faith.
“Defensive overpayment” is a symptom of a deeply unhealthy trade relationship. It demonstrates a complete breakdown of trust and predictability, forcing businesses to adopt costly survival strategies that ultimately harm their competitiveness and benefit no one.