It looks like the United States just set a record in 2021—and not a good one. When complete December data comes out on Feb. 8, it will mark the first time the nation ever racked up an annual goods trade deficit exceeding $1 trillion. That’s a staggering sum, and it represents a massive, ongoing shift in production away from U.S. factories toward China and other state-subsidized manufacturers.
As bad as that number is, it turns out America’s goods deficit is actually even worse. That’s because an entire category of imports—known as “de minimis” shipments—keeps arriving in the U.S. each day with only minimal tracking by the federal government.
De minimis isn’t inconsequential
The de minimis provision of U.S. customs law allows imports valued at less than $800 to enter the country duty-free. The provision was originally established almost 100 years ago, to save the federal government from assessing tariffs on small, inconsequential items from overseas. The threshold was first set at $1 in the 1930s and gradually increased to $200 in the 1990s. However, in 2016, it was abruptly raised by Congress to $800.
This recent increase in the de minimis threshold has enabled a vast new flood of e-commerce imports to flow into the U.S. each day. U.S. Customs and Border Protection (CBP) reports that roughly 771 million de minimis packages entered the U.S. in fiscal year 2021 alone. That’s more than two million packages a day.
According to new research by the Coalition for a Prosperous America, the value of these de minimis imports reached at least $128 billion last year. Remarkably, that number isn’t even included in America’s massive $1 trillion goods deficit for 2021. As a result, the nation’s trade deficit in 2021 was actually almost 15% higher than the federal government has reported.
The black hole
The huge volume of these de minimis shipments means the U.S. Treasury lost out on roughly $20 billion in tariff revenues. It also means that thousands of potentially dangerous and counterfeit products are entering the U.S. each day with little or no inspection. That’s because 90% of all intellectual property seizures come through international mail and express shipping. And 83% of them originate in China.
This black hole of imports is poised to expand, thanks to the proliferation of the “Amazon AMZN, +2.84% economy.” And that means a further challenge to struggling U.S. manufacturers. It’s commonly estimated that each billion dollars of goods imports costs 6,000 U.S. jobs. As a result, de minimis robbed Americans of some 768,000 jobs last year.
This is a flawed system that must be fixed. In response, Oregon Democratic Congressman Earl Blumenauer recently introduced legislation to end the abuse of the de minimis loophole. Blumenauer’s bill would ban shipments from nonmarket economies that do not adequately enforce intellectual property laws. Doing so could put the brakes on many of the counterfeit goods arriving from China through express shipping.
Blumenauer’s bill offers a helpful solution. And House Democrats have already included it in the new America COMPETES Act of 2022, which is intended to address key problems in the U.S.-China trading relationship.
More work to do
There’s still more work to do, however. Congress should consider reducing the U.S. de minimis threshold—which is currently the highest in the world. China’s de minimis limit, for example, is 50 yuan ($7.90), Mexico’s is $50, Canada’s is $200 Canadian dollars ($158), and the European Union’s limit is 150 euros ($170).
Additionally, the federal government should start tracking the size, source, and product categories of de minimis shipments. Congress could hold hearings to determine the true value of these imports.
It’s time to fix America’s de minimis provision—which has resulted in lost domestic manufacturing, increased intellectual property theft from unregulated imports, and damage to bricks-and-mortar retailers competing with importers.
Congress should pass Blumenauer’s legislation—and ensure that Chinese exporters are no longer eligible for de minimis treatment. Even better would be to reduce the de minimis limit to $10. Doing so could help to check the unregulated flood of imports now hammering U.S. manufacturers.
Jeff Ferry is chief economist at the Coalition for a Prosperous America, a nonprofit organization that represents manufacturing groups, agricultural organizations, and labor. Follow him at @menloferry.