The US is making too big a deal over small Chinese parcels

Alleging slave labour and drugs smuggling, some American senators are zoning in on how the country’s de minimis rule benefits Chinese companies
But levying duties on low-value shipments will only punish consumers and small businesses – and do little to fight America’s fentanyl crisis

David Dodwell

Published: 7:00pm, 24 Nov 2023

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Back in 2016, the US raised the duty exemption threshold for low-value imports from US$200 to US$800 under its de minimis rule. For importers, it meant that millions of small parcels arriving in the US could be fast-tracked through customs, duty-free.

For US customs, it cut the administrative hassle and cost, which the revenue due on such small consignments hardly justified – they were too small to be bothered about.

But US politicians have decided to be bothered, and as usual, they blame China. Driven by the e-shopping explosion turbocharged by the pandemic lockdowns, imports benefiting from the de minimis exemption have leapt from 220 million items in 2016 to 771 million in 2021.

China ships around 60 per cent of these parcels, of which Temu and Shein account for half. Last year, Shein, which boasts 30 million active users in the US, exported US$7.7 billion worth of goods to the country. Temu and Shein accounted for an estimated third of Meta’s revenue growth in the first nine months of this year as their ad spend in the US intensified. By comparison, the e-commerce businesses of Amazon and Walmart amounted to just US$5.2 billion apiece in the US, with Macy’s at US$4.9 billion.

Fast off the mark in targeting China and calling for the de minimis rule to be reversed was Robert Lighthizer, protectionist-in-chief during Donald Trump’s presidency. He complained to a House panel in May: “Nobody dreamt this would ever happen. Now we have packages coming in, 2 million packages a day, almost all from China. We have no idea what’s in them. We don’t really know what the value is.”

Complaints took a more specific shape under US senators Bill Cassidy and Tammy Baldwin, who in June unleashed the De Minimis Reciprocity Act. They allege that China is using de minimis to drive illicit trade, from cheap garments using forced Uygur labour to trafficking drugs. They say the loophole is at the heart of the fentanyl imports that last year killed as many as 70,000 Americans.

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Specifically, the bill aims to exclude imports from “untrustworthy” countries, limit the de minimis exemption to trusted express carriers, demand more information about the origins of all consignments, and use the revenue raised to create a “reshoring fund”.

The same week, senators Marco Rubio and Sherrod Brown introduced the Import Fairness and Security Act, which also targets the de minimis rule in relation to “non-market economies”. Soon after, the Congress Select Committee on the Chinese Communist Party released a “shocking” report focusing on Temu and Shein.

“Temu is doing next to nothing to keep its supply chains free from slave labour,” said committee chairman Mike Gallagher, adding: “Temu and Shein are building empires around the de minimis loophole in our import rules – dodging import taxes and evading scrutiny on the millions of goods they sell to Americans.”

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Whether these bills succeed in curbing de minimis exemptions, there has been strong resistance, in particular from retail shoppers and US small businesses.

US Chamber of Commerce head John Drake, and colleagues at the National Association of Manufacturers, forecasts damaging consequences for the US economy. Drake said: “De minimis has become a proxy for all sorts of anxieties as it relates to China and other trade-related challenges.”

Last year, in response to a proposed lowering of the de minimis threshold in the semiconductor bill, business groups led by the chamber and association wrote that it would “impose sweeping costs on American businesses, workers and consumers, add new inflationary pressures on the US economy, and exacerbate ongoing supply chain disruptions at US ports”.

As Drake put it, the collection of duties on low-value shipments “really wasn’t worth the trouble”.

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According to the National Foreign Trade Council, cancelling de minimis could double costs: a parcel valued at US$50, without the de minimis exemption, would attract expensive paperwork costing about US$27 and a brokerage fee of US$20 – with whatever tariff is imposed falling on top of this.

Gary Hufbauer and Megan Hogan at the Peterson Institute for International Economics say dismantling de minimis would add complexity to supply chains and generate “creative circumvention” by shippers.

As for fentanyl and other drugs, they point out that both the US customs authority and shippers such as FedEx, UPS and DHL already have sophisticated means of detecting and banning illegal parcels. They also note that US customs is “on course” to seize 1.2 billion doses of fentanyl this year – but only 3 per cent of this from air cargo, the main channel for the movement of small parcels.

Unravelling de minimis, they conclude, would mean “a greater tariff burden borne by consumers and small businesses, sky-high incentives for US tariff circumvention, a nightmarish US tariff schedule and a negligible dent in the fentanyl crisis”.

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Others, including the National Foreign Trade Council, argue that the US needs more detailed and trustworthy upstream information on manufacturers and supply chains, and continued development of “trusted trader” schemes – but that neither of these improvements would require any change in de minimis rules.

However strong the anti-China passion in Congress or desire to “reshore” and “make America great again”, the 2016 decision makes sense. Changes to de minimis rules are simply not worth bothering about.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades