As Congress finalizes legislation to improve the nation’s competitiveness, it should address a glaring loophole that, left open, would undermine the stated purpose of the bill. Left untouched, certain importers will continue to exploit a legal provision of U.S. trade law that rewards China, letting millions of products into the U.S. market duty free that otherwise would be subject to tariffs, penalty tariffs, taxes and inspection.
This loophole allows a package of goods valued at $800 or less to come into the country per person every day without paying duties or customs inspections. And, while it’s called a “de minimis” mechanism, it’s no longer small or trivial, as the Latin phrase suggests.
More than 2 million packages a day now flood into the United States using the de minimis mechanism. A wide range of consumer products, pharmaceutical and health care items make it to our doorsteps with such little scrutiny that we have no idea who is making these products, whether they are made with forced labor, or whether they are safe to use. By the click of the button, these items make it into our closets and medicine cabinets. In fact, they get rewarded by current U.S. trade policy.
This legal loophole allows these products to come in duty free and legally evade the penalty tariffs we have against China and others. What’s the purpose of a free trade agreement or trade enforcement mechanism if we simultaneously provide an easy way to work around them?
This puts American companies at a competitive disadvantage and makes U.S. manufacturing jobs disappear. With the explosion in e-commerce shipments, de minimis waivers have become a tool that certain importers exploit to allow them to import more cheap products into the U.S. market.
With the rapid rise of e-commerce, coupled with Congress raising the duty-free limit from $200 to $800 in 2016, foreign competitors were quick to act. Multibillion-dollar Chinese companies, U.S. e-commerce platforms and express shippers are capitalizing on it.
Further alarming is the way this mechanism helps facilitate the importation of products from the Xinjiang region of China. Virtually all Chinese cotton is grown and processed in Xinjiang using the forced labor of the Uyghur Muslim minority population, which has been subjected to countless atrocities that the U.S. government has deemed “genocide.” Undoubtedly, millions of products from Xinjiang now slip undetected into the United States.
The de minimis loophole is so large and wide that House Ways and Means Trade Subcommittee Chairman Earl Blumenauer (D-Ore.) recently noted “it is a loophole that you can drive an air cargo plane through.” Customs agents don’t have the tools to know where the goods originate or who is making them.
The Chinese government would never let American companies enjoy similar advantages to sell to their consumers. Its own de minimis threshold is a meager $7. The United States has one of the highest in the world at $800. While we hold our door wide open, the Chinese government wisely keeps its door virtually shut. An $800 versus $7 limit is hardly a reciprocal arrangement. Instead, we’re unilaterally giving China a massive tax and trade concession. The very least we should do is match China’s $7 threshold.
The American textile manufacturing sector, in particular, has paid a high price for China’s meteoric export growth. China’s dominance in global textile and apparel markets—which has led to shuttered U.S. plants and lost jobs—has been aided by substantial state ownership of manufacturing, export subsidies and rampant violations of intellectual property rights. Those abuses are egregious enough without adding in the exploitation of the de minimis procedure, too.
That’s why a broad array of American businesses, labor unions and consumer protection groups support closing the loophole.
It’s time to close this harmful loophole. The House-passed version of the competitiveness legislation, the America COMPETES Act, would do just that through a provision sponsored by Blumenauer that would end China’s ability to use the mechanism. The Senate version of the bill retains the status quo. The time to act is now, to ensure the Blumenauer provision remains in the final reconciled House and Senate China bill.
Congress is on the verge of taking long-overdue action to improve American competitiveness. But it will seriously undercut the legislation’s goal if it leaves wide open a back-door reward for China and certain importers. Let’s close the door so U.S. manufacturers can compete.
Kim Glas is the president and CEO of the National Council of Textile Organizations and is an appointed commissioner to the U.S. China Economic and Security Review Commission, and former Commerce deputy assistant secretary for textiles and apparel.