Washington, D.C. – In an effort to counter the economic challenges posed by China, conservatives are directing their attention toward a key trade priority shared by labor unions and progressives: tightening regulations on the influx of duty-free packages from China. This evolving political landscape could have significant implications for e-commerce businesses and consumers who import products from China valued at less than $800. Moreover, it may contribute to escalating tensions between the two countries.
Presently, under U.S. law, most imports valued under $800 enter the United States duty-free, provided they are individually packaged and addressed. Referred to as the de minimis rule, this policy has become a point of contention in Congress, with efforts to lower the threshold amount or exclude certain countries from duty-free treatment taking center stage in the trade debate.
John Drake, Vice President at the U.S. Chamber of Commerce, asserts that the existing U.S. law should be maintained, stating, “De minimis has become a proxy for all sorts of anxieties as it relates to China and other trade-related challenges.”
Supporters of the de minimis rule argue that it accelerates commerce and reduces costs for consumers. It also enables U.S. Customs and Border Protection to focus their resources on higher-value items that generate more tariff revenue for the federal government.
Over the past few years, the volume of products benefiting from the de minimis rule has soared. In 2016, Congress raised the threshold for expedited, duty-free treatment from $200 to $800. Since then, the number of such imports has surged from approximately 220 million packages in 2016 to 771 million in 2021, with China accounting for roughly 60% of these shipments. Last year, the figure stood at 685 million.
Robert Lighthizer, former U.S. Trade Representative during the Trump administration, testified before a House panel, expressing concerns about the de minimis rule. Lighthizer called for its complete elimination or a significant reduction in the threshold amount, suggesting $50 or $100. He contended that foreign companies were taking advantage of this “loophole,” resulting in job losses in retail and manufacturing sectors.
In 2022, House Democrats proposed legislation to prohibit Chinese-made goods from benefiting from the special treatment for lower-cost goods. However, due to opposition from influential U.S. business groups and key Republican lawmakers, the measure did not make it into the final bill.
The political landscape has shifted rapidly since then. The newly established Select Committee on the Chinese Communist Party, dedicated to examining China-related issues, recommended legislation that would lower the threshold for duty-free shipments into the United States, with a particular emphasis on “foreign adversaries, including the (People’s Republic of China).” The committee highlighted the potential for Chinese companies to exploit the $800 threshold, enabling them to circumvent U.S. laws designed to prevent the sale of goods produced with forced labor. It further emphasized the Customs and Border Protection’s inability to effectively scrutinize products sent under the $800 threshold for forced labor concerns due to the sheer volume of incoming shipments.
Among the concerns raised by the committee, attention was drawn to retailers Temu and Shein, which directly ship products to U.S. consumers. According to the committee’s report, these two companies alone accounted for over 30% of all de minimis shipments entering the U.S. each day, amounting to nearly 600,000 packages in 2022.
The committee also expressed concerns regarding competitiveness. Notably, Gap and H&M, prominent U.S. retailers, paid $700 million and $205 million, respectively, in import duties in 2022. In contrast, almost all of Temu and Shein’s goods were shipped using the de minimis exception, exempting them from paying any duty.
The shift in political dynamics is also evident in committees with jurisdiction over trade. Previously, Texas Representative Kevin Brady, the top Republican on the House Ways and Means Committee, cautioned against hasty changes to reasonable de minimis limits. However, Representative Jason Smith of Missouri, who now leads the committee, expressed a willingness to reevaluate the $800 threshold, stating the need for extensive discussions on the matter.
In the Senate, new bills addressing the issue have recently been introduced. One such bill, co-sponsored by Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Florida), aims to prevent expedited, tariff-free treatment of imports from specific countries, most notably China and Russia. Another bill, introduced by Senators Bill Cassidy (R-Louisiana) and Tammy Baldwin (D-Wisconsin), not only targets China and Russia but also affects other trading partners. This bill seeks to reduce the threshold for duty-free treatment to match the amount used by other nations. For example, if a country like Belgium, which follows the European Union’s threshold of 150 euros (approximately $165), the United States would reciprocate by using the same amount to determine duty-free treatment for goods imported from Belgium.
Senator Cassidy highlighted that former President Donald Trump played a pivotal role in reshaping the Republican perspective on trade with China, emphasizing the need to address unfair competition, subsidies, and forced labor practices.
Business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, previously opposed the inclusion of the de minimis trade provision in the semiconductor bill in early 2022. They warned that such changes would impose substantial costs on American businesses, workers, and consumers, exacerbating inflationary pressures and supply chain disruptions at U.S. ports.
John Drake from the U.S. Chamber of Commerce argues that reducing the threshold would impose a significant tax increase on many small businesses, as they would likely have to hire customs brokers to process their shipments. Drake also emphasized that Congress initially raised the threshold in 2016 to provide a competitive advantage for the U.S. business community while recognizing the limited benefit of collecting duties on low-value shipments.
As the debate intensifies, the future of the de minimis rule and its impact on trade relations with China remain uncertain. The battle lines are drawn between those who seek stricter regulations to protect American industries and workers and those who advocate for maintaining the current policy to facilitate commerce and benefit consumers. The outcome of this trade fight will have far-reaching implications for e-commerce businesses, consumers, and the overall U.S.-China economic relationship.