Trump Is Trying To Close A Trade Loophole That Nets Billions To Slave Drivers And Drug Dealers
President Trump’s recent executive order imposing tariffs on China, Canada, and Mexico included the suspension of a trade loophole. Although the suspension primarily targets low-value imports, its implications are wider than many might realize.
At the heart of this issue is the de minimis provision, which originates from Section 321 of the Tariff Act of 1930. This provision was initially designed to prevent the government from incurring excessive costs and hassles for small imports made by individuals in a single day, as long as the fair retail value of those imports did not exceed $1. Over the years, Congress has raised this threshold multiple times, and it currently stands at $800, making it the most generous de minimis exemption in the world. In contrast, Canada’s de minimis exemption is capped at only $15.
In recent years, numerous foreign companies, particularly those in China, have capitalized on America’s overly generous de minimis threshold amid the e-commerce boom. This exploitation has led to a significant increase in both the volume and value of imports that are exempt from tariffs due to this provision.
A congressional report revealed that between fiscal year 2018 and 2021, more than two-thirds of de minimis imports came from China (including mainland and Hong Kong). In 2023 de minimis imports comprised an astonishing 1 billion parcels valued at approximately $54.5 billion, with around $18 billion in shipments originating from China.
The Select Committee on the CCP estimated that two Chinese companies accounted for more than 30 percent of the daily de minimis shipments in the U.S. These companies are Shein, a fast fashion online retailer based in Singapore that sources most of its products from China, and Temu, a China-based e-commerce marketplace offering a wide range of items from cosmetics to knock-off iPods. These companies ship their merchandise directly to American consumers at extremely low prices, utilizing small shipments that are exempted under de minimis provisions.
Not surprisingly, both companies have experienced significant growth in the U.S. market because their heavily discounted merchandise has attracted budget-conscious Americans facing high inflation. As of January 2024, “U.S. monthly active users on Temu grew to 51.4 million [since] its September 2022 launch. … Shein’s users increased from 20.9 million to 26 million during the same period,” according to The Wall Street Journal.
The U.S. Customs and Border Protection agency has found that the volume of de minimis shipments continued to escalate, with shipments reaching nearly 1.4 billion in fiscal year 2024.
The de minimis provision is increasingly under fire for its detrimental effects on both the economy and society. Critics argue that it encourages excessive consumption that harms our environment and allows products that often fall short of U.S. environmental and labor standards to flood our markets.
For example, the Uyghur Forced Labor Prevention Act (UFLPA) enacted in 2021 aims to prevent goods produced with forced labor in Xinjiang, China, from entering U.S. markets. However, the minimal legal scrutiny associated with de minimis shipments creates an escape route for products made under these abusive conditions, undermining the UFLPA’s intent and ethics.
An even more pressing concern is the de minimis provision’s role in the growth of the illicit drug trade. The Department of Homeland Security disclosed that “as of July 30, 2024, 89 percent of all seizures in the cargo environment this fiscal year originated as de minimis shipments, including 97 percent of narcotics seizures and 72 percent of health and safety seizures of prohibited items.”
Moreover, the tax exemptions and reduced compliance costs afforded by the de minimis provision put foreign companies at a distinct advantage, forcing American businesses to make painful cuts to survive. The New York Post estimated that around 15,000 U.S. chain stores are expected to close, primarily due to fierce competition from low-cost, duty-free imports from companies like Shein and Temu. This situation not only threatens American jobs but also undermines American industry as a whole.
There has been a rare bipartisan support to address the exploitation of the de minimis provision. The former Biden administration took executive action to limit textiles from China entering the U.S. under the de minimis provision. In early January this year, the Customs and Border Protection (CBP) proposed new rules to prevent some merchandise from qualifying for the de minimis exemption.
Trump’s executive order sought to eliminate the de minimis provision entirely. The rollout of this executive order, unfortunately, encountered considerable obstacles. The U.S. Postal Service’s abrupt decision to cease inbound parcel shipments from China and Hong Kong in response to the order sparked confusion and outrage among the public. The USPS’s reversal of this decision only intensified the disorder, demonstrating the crucial need for clear and well-structured trade policies.
In light of these complications, President Trump issued a follow-up executive order a few days later. This new order temporarily paused the enforcement of part of the previous executive order. It allowed de minimis shipments to continue while giving the Department of Commerce and Customs and Border Protection (CBP) the necessary time to adjust their systems for processing and collecting tariff revenues that fall under the de minimis exemption. The issuance of two executive orders within a few days on the same topic reflects the complex challenges involved in effectively addressing the loophole created by the de minimis provision.
A lasting solution is essential to ensure that cross-border e-commerce does not compromise the safety and well-being of American consumers and businesses. The U.S. Congress should consider lowering the de minimis threshold to better align with those of other countries, such as Canada’s $15 limit. By implementing this change, we can significantly reduce the incentive for foreign companies to exploit low-value shipments to evade taxes and regulations. This would create a fairer trade environment for all parties involved and ensure that American interests are protected in the global marketplace.
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