At minimum, keep the de minimis import exemption

The US-China Economic and Security Review Commission has just issued its recommendations for China policy. One of them is to eliminate the de minimis exemption for imports. This would be a major mistake.

De minimis is a legal term that roughly means that something is too small to bother with. For imports, America has a de minimis exemption that allows packages containing goods worth under $800 to enter the country duty-free. This is because the administrative costs of inspecting every package entering the country would be crippling. Last year, roughly a billion de minimis packages entered the US from all countries, not just China.

The Commission’s report estimates de minimis packages from China in 2023 were worth roughly $10.4 billion. This is about 2.4 percent of total Chinese imports in 2023, which were $427 billion. At about one fortieth of Chinese imports, this fraction is small enough to defeat the Commission’s arguments about substantial revenue losses or large-scale tariff avoidance.

Ending the de minimis exemption would burden already-fragile supply networks that are fresh off a dockworker strike and a pandemic. And it would raise consumer prices at a time when people are still angry about inflation, while adding frustrating delays to shipping times.

The Commission’s reasoning is that Chinese sellers are using de minimis exemptions as a loophole to avoid tariffs. Page 272 of the Commission’s report says that “Unscrupulous China-based sellers lack the diligence, capacity, and skill required to produce high-quality goods that meet U.S. safety regulations, thus increasing U.S. consumers’ exposure to risks stemming from unsafe, counterfeit, and poor-quality goods from China.”

That is a bold assertion. One way to test it is to look at accident rates from faulty goods over time. I did this in my review of former Trump trade adviser Peter Navarro’s book, coauthored with Greg Autry, Death by China:

Navarro and Autry also tell numerous scare stories about consumer products, quoting on p. 44 from a 2007 Chicago Tribune story that “Despite 55 complaints, seven infants left trapped, and three deaths, it took years for the Consumer Product Safety Commission to warn parents about 1 million flawed cribs.” They do not put these scary numbers in context. In 2007, the overall mortality rate for children under 5 in the U.S. was 7.8 per 1,000 per year. That’s a rate of 0.78 percent per year. Three deaths out of a million flawed cribs is 0.0003 percent. This number, which is 3,846 times less than the general child mortality rate, overstates the danger. And the Chicago Tribune story does not specify how many of those million cribs were Chinese-made. Navarro and Autry do not provide a comparison for mortality rates from cribs made in China versus those made in other countries.

America’s child mortality rate is less than half what it was when China began its economic reforms in 1978. Back then it was 16.3 deaths per 1,000 children under five. By 2015, the number was 6.5 per 1,000. So by that measure, children in the U.S. are more than twice as safe as they were before Chinese products began flooding American store shelves.

Being better than Peter Navarro is a low bar to clear. On the de minimis exemption, the Commission fails to clear it. Like Navarro and Autry, the US-China Commission does not compare accident rates from Chinese-made and US-made goods. Without this information, there is no basis for determining whether de minimis goods pose a safety hazard compared to other goods.

The report can only say there is correlation, not causation. On page 296 it says, “Although it is not possible to draw a causal relationship between the number of Chinese-made goods entering the United States and rising recall and NOV counts with the data presented, it should be noted that these trends have occurred against a backdrop of rising e-commerce shipments from China.”

The report’s own data shows that legislative changes and an intentional spike in recall enforcement had more effects on the data than anything to do with de minimis policy, which is never cited as a contributing factor.

Lead poisoning is one example. The Commission’s report cites lead-containing products several times, but never mentions lead poisoning rates in the US. A reason for this might be that according to Our World in Data, median lead concentrations in children’s blood is today roughly 95 percent less than 1970 levels. In other words, lead levels are about one twentieth of what they were before Chinese imports became common, even with the lead-laden products the Commission cites. This is inconvenient for the story the Commission wants to tell. Nor does it explain why de minimis imports are a contributor.

Many goods with strict safety standards do not get the de minimis exemption, because, like roughly 97 percent of Chinese imports, they are typically imported in bulk by retailers. The report also does not compare safety data from de minimis Chinese imports versus non-de minimis Chinese imports. Again, without a comparison, there is no way to know if there is a threat or not.

As for knock-off or low-quality goods, consumers are much harsher regulators than the government. Ratings, reviews, word of mouth, and bad publicity can send death to businesses that don’t give customers what they want.

The e-commerce platform Wish.com became the butt of internet memes for its cheaply made knock-off wares. Wish’s revenues declined in step with its reputation, and it was sold earlier this year for about 1 percent of its IPO valuation. Consumers are much harsher sovereigns than government regulators.

In some cases such as fast fashion, some consumers actually prefer inexpensive, lower-quality but unique clothing that can be worn a few times and then discarded for newer looks. For them, direct-to-consumer outlets like Temu, Shein, and others provide this service. As with Wish, they live at consumers’ mercy. If they don’t give customers what they want, they will meet the same fate.

The Commission’s report cites fentanyl trafficking as a de minimis problem. The real problem is the drug war, which shifts drug users to fentanyl in the first place. Prohibition fails everywhere it is tried.

Assuming that fentanyl traffickers do use the de minimis exemption to their advantage, closing that loophole will not stop them. They will find other ways to get it to the US, just as traffickers have since the days of alcohol prohibition. Better to treat the root problem of drug prohibition, especially when this symptomatic treatment will fail.

The Commission cites de minimis shipments as tilting the US balance of trade towards imports. Economists of all political stripes know that the balance of trade has nothing to do with economic health. People do not trade with each other unless they both stand to benefit. Interested readers can pursue this further in sources ranging from Adam Smith’s Wealth of Nations to CEI’s own work.

Congress should ignore the US-China Commission’s de minimis recommendation, which will raise consumer prices at home while doing nothing to spark needed reforms in China, improve consumer safety, lower drug abuse, or alter the balance of trade in a beneficial way.

If anything, the de minimis exemption needs to be raised. It has been stuck at $800 since 2016, which is $1,048 in 2024 dollars. It should be raised to at least that level and indexed to inflation.