One of the consistent problems with the Trump administration’s trade policy is an obsession with reciprocity—if goods aren’t treated exactly the same way as imports or exports in trade between two countries, then that is “unfair” to the U.S. This fundamentally misunderstands the nature of trade, which benefits from nondiscriminatory duties on the products of other nations regardless of what duties they themselves exact. The U.S. Tariff Commission recognized this in 1919, and the principle became the basis of the post-war GATT trading system (as Dan Griswold of the Mercatus Center explains here). Yet the White House is backing the U.S. Reciprocal Trade Act to upend this long-standing policy, a bill CEI opposes.
So convinced is the administration of its wrong-headed policy, that it is looking to impose it even on the small imports households and small businesses make all the time.
When someone buys something from abroad, they generally have to pay import duties. However, it has long been recognized that at some level these duties are an inconvenience not only to the purchaser and supplier, but to the excise system itself. Therefore, there has been a “de minimis” level of purchases below which such excise duties do not apply. For many years, this level was $200.
However, in the Trade Facilitation and Trade Enforcement Act of 2015, Congress recognized that this level was too low for the increasing number of small businesses that sourced small amounts of business inputs from abroad, most likely via a platform like eBay, and raised the level to $800. Congress found:
(1) Modernizing international customs is critical for United States businesses of all sizes, consumers in the United States, and the economic growth of the United States.
(2) Higher thresholds for the value of articles that may be entered informally and free of duty provide significant economic benefits to businesses and consumers in the United States and the economy of the United States through costs savings and reductions in trade transaction costs.
It therefore added the following sense of Congress clause in the process of raising the value:
It is the sense of Congress that the United States Trade Representative should encourage other countries, through bilateral, regional, and multilateral fora, to establish commercially meaningful de minimis values for express and postal shipments that are exempt from customs duties and taxes and from certain entry documentation requirements, as appropriate.
The reform has been particularly beneficial to small e-commerce businesses.
Unfortunately, despite this recently expressed sense of Congress, the U.S. Trade Representative has included a footnote in its Customs and Facilitation Chapter to the U.S.-Mexico-Canada Agreement (USMCA—the “new NAFTA”) that suggests that the president should have the power to lower the de minimis level to a “reciprocal amount” similar to whatever burden Mexico and Canada place on their own citizens. Bipartisan groups in the U.S. House and Senate have written to U.S. Trade Representative Robert Lighthizer expressing their concern at this provision.
Mexico and Canada’s de minimis provisions are very low—well below the pre-2015 threshold of $200. As noted above, this is a burden on the citizens of those countries that we should not seek to match. The Senate letter appropriately notes that requiring reciprocity on such a minor matter would breach our commitment to nondiscriminatory duties manifest in the Most Favored Nation system, potentially start a global “race to the bottom” in order to undermine U.S. e-commerce leadership, and cause needless complications and difficulties for an already strained customs and border protection infrastructure.
It is, moreover, unclear what the USTR hopes to gain by insisting on reciprocity at such small values. This may be an example of something Ralph Waldo Emerson noted—“A foolish consistency is the hobgoblin of little minds, adored by little statesmen.”
Rather than reducing our own provisions, the USTR should do as Congress requested and work to raise Mexico and Canada’s levels. Their citizens will be grateful—and buy more American goods.
Congress, in addition to insisting on its own privileges in respect to its powers over trade, should reaffirm its 2015 findings and insist on this provision being removed.