Times are changing.
Where the GOP once stalwartly supported “free trade,” many Republicans are now openly questioning the effectiveness of U.S. trade policy. And in Congress, both Republicans and Democrats are looking to rewrite America’s problematic trading relationship with China. In particular, bipartisan consensus is emerging on the need to overhaul an obscure part of U.S. customs law known as “de minimis.” This would certainly help U.S. manufacturers since the de minimis loophole has been helping China for almost a decade.
What exactly is de minimis — and why has it become such a concern for Congress?
Some of the credit for this new focus goes to House Ways and Means Committee Chairman Jason Smith, Missouri Republican. Indeed, Mr. Smith has used his leadership over the powerful tax-writing committee to spotlight important China issues. He recently led a hearing specifically focused on China trade. Notably, de minimis topped Mr. Smith’s list of concerns — something he views as essentially a “free trade agreement with China.”
The de minimis provision was written into U.S. customs law almost 100 years ago to save the federal government the trouble of assessing tariffs on small, inconsequential items from overseas. Originally set at $1, the de minimis threshold was gradually increased to $5 by the 1990s. In 2016, however, Congress abruptly raised the threshold to an astounding $800.
Why was the limit suddenly raised so high? Doing so allowed Amazon and other express shippers to import packages valued at less than $800. Online retailers could now bring in an endless amount of consumer goods while bypassing customs bonds, manifest information, tariffs and taxes.
Since then, e-commerce sales have exploded. More than 2 million small packages enter the United States daily — most of them shipped straight to U.S. consumers. This has proved extremely profitable for China; a recent Coalition for a Prosperous America analysis found that the de minimis loophole added roughly $188 billion to the U.S. trade deficit with China in 2022 alone.
This daily avalanche of packages has made much of the longstanding vetting of imported goods impossible. Products shipped directly to U.S. consumers bypass the current 25% U.S. tariff on Chinese imports. In fact, any merchandise valued at less than $800 faces no U.S. taxes or tariffs whatsoever.
As Mr. Smith’s hearing made clear, untold thousands of potentially dangerous and counterfeit products are now entering the U.S. each day. This is extremely disturbing because more than 90% of all intellectual property seizures come from international mail and express shipping; 83% of them originate in China.
The sad truth is that the majority of de minimis shipments to the U.S. are a mystery. Roughly 1 million of these packages contain absolutely no identifying data beyond a mailing label, a declared value, and a brief description of contents. Customs and Border Protection staff can’t feasibly examine all of these labels. And even a cursory review can miss fraudulent labels hiding contraband goods, fentanyl and other illicit drugs.
Overall, the de minimis threshold change has granted a huge advantage to China’s heavily subsidized manufacturers. And it makes it nearly impossible for America’s brick-and-mortar retailers to compete with Amazon.
Mr. Smith is absolutely right. The de minimis loophole is helping China at the expense of U.S. producers. In the same hearing, Rep. Earl Blumenauer, Oregon Democrat, agreed — and pointed out that de minimis facilitates both lawbreaking and a flood of imports from fast-fashion e-commerce players in China, such as Shein and Temu. A recent investigation by Bloomberg News found that Shein is using the de minimis loophole to skirt U.S. efforts to crack down on imports made with forced labor.
Congress must continue to find bipartisan consensus on trade with China. And fixing the de minimis problem should be a priority. Otherwise, U.S. manufacturers and retailers that form the backbone of communities nationwide will suffer the economic fallout.
This Op-Ed by CPA CEO Michael Stumo was originally published on May 22, 2023 in the Washington Times.
