Ever since the United States increased the duty-free import threshold from $200 to $800, American businesses and consumers have had greater access to small import shipments of consumer goods and business supplies. A recent legislative proposal called the “America COMPETES Act” would undo those gains. While protectionist policies will always have political appeal, there are costs and benefits to rolling back a small-but-important trade liberalization.
Under the current, so-called de minimis threshold (DMT), goods valued under $800 incur no import duties and are subject to minimal clearance procedures and data requirements when entering the United States. Importers of these shipments experience expedited shipping, no import taxes and less administrative burden. The threshold used to be $200, but in 2016 Congress increased that to $800. I have written about it on several occasions.
The easier clearance procedures and data requirements tend to disproportionately benefit small businesses. Smaller businesses are more likely than large firms to ship in small batches and have fewer resources to expend on administrative tasks. Small businesses therefore face a disproportionately high cost of compliance with import procedures for low-value parcels.
While there is no official data on the volume of de minimis parcels, e-commerce trends are indicative. There are 31.7 million small business owners, many of them single proprietors, and they often shop online for supplies and inputs. Census data show e-commerce as a share of total retail sales has been increasing steadily over the past decade and recently hit 15 percent.
Consumers benefit from the higher de minimis threshold because they can access small items using digital platforms such as Amazon, eBay and Etsy. Customs officials benefit from the administrative cost savings. Scanning, cataloguing and tracking large volumes of small parcels requires immense resources.
Small businesses abroad also benefit from direct access to the consumer. For instance, a Ukrainian woman named Veronika sells a set of hand-painted wooden Easter eggs on Etsy for $23.99. (At least until Russia invaded Ukraine. She posted on Feb. 28 that she will be back to her store after the war.)
Meanwhile, the National Council of Textile Organizations has complained that these low-valued shipments put their sector’s domestic manufacturers and workers at a competitive disadvantage. The American Apparel & Footwear Association cites counterfeiting concerns. Other groups have made bogus claims linking the de minimis threshold to the U.S. trade balance.
Not all retailers are so sure, though. Jonathan Gold of the National Retail Federation recently expressed caution on adding additional stresses to the supply chain. He indicated the need to study the issue and make sure that new policies don’t create further problems.
Congress has addressed some of these concerns with Customs and Border Protection enforcement and antidumping and countervailing duties, the latter aimed to “level the playing field for U.S. companies injured by unfair trade practices.”
Are they perfect tools? Do they keep out every single good that should not cross our border? No. But does that mean we should tighten the noose? Not necessarily. Remember, the economically optimal level of crime is not necessarily zero. That’s because getting there would be prohibitively costly and require a large and paternalistic role for government.
The economically optimal level of tariff evasion or counterfeit goods is not zero either. We might have to live with some tariff evasion and some counterfeit goods. Maybe that is the price we pay for the benefits of the higher de minimis threshold.
Consider clothing. Some 300 million Americans shop online, and the majority (59 percent) buy clothing items online. Making online shopping for legitimate, foreign-sourced clothing more bureaucratic, difficult and costly would raise prices and reduce selection and choice for these 177 million shoppers.
Rolling back the de minimis threshold is also contrary to the administration’s proclaimed worker-centric policies. In a recent YouTube video, U.S. Trade Representative Katherine Tai said that “worker centered” trade policy is “about more than just empowering the biggest, most resourced stakeholders.” But at its economic core, the DMT is about just that — empowering individual consumers and small businesses. It’s about getting your dollar to go farther because you have greater access to the goods you want or need for your household or business.
Don’t start rolling back the de minimis threshold without a careful analysis of the costs and benefits to American consumers, businesses, and the economy.
Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.