‘Trivial’ tariff would cost the poor billions

Sen. Sherrod Brown (D-OH) and several other lawmakers are trying to impose a large tax increase on low-income families by ending the “de minimis” exemption (from the Latin for “pertaining to small or trivial things”) in the tariff law that protects goods worth less than $800 that come from non-market economies like China. Senate Finance Chairman Ron Wyden has introduced separate legislation that would impose an average tax of 14.7 percent on all imports of cheap clothing.

A recent working paper from the National Bureau of Economic Research finds that eliminating the de minimis exemption for imports from all countries would reduce net U.S. welfare by $11.8-$14.3 billion, while disproportionately hurting lower-income consumers and minorities. Economists Pablo D. Fajgelbaum and Amit Khandelwal calculate that if the de minimis exemption were eliminated, people living in the poorest zip codes would face an average tariff of 12.1 percent, compared with an average tariff of just 6.7 percent for the wealthiest zip codes. Moreover, many small and midsize businesses rely heavily on the de minimis exemption.

Ending the exemption only for products from China and other nonmarket economies would also be costly. According to federal statistics, China accounted for 64 percent of U.S. de minimis imports from 2018 to 2021.

The federal government created a de minimis exemption for low-value imports in 1938 “to prevent expense and inconvenience to the government disproportionate to the amount of revenue otherwise collected.” Most of these low-value de minimis imports are exempt from duties, other taxes, the requirement to use a customs broker, and processing fees.

Congress has raised the exemption threshold several times over the years, most recently raising it to $800 in the Trade Facilitation and Trade Enforcement Act of 2015. The increase was intended to benefit U.S. businesses and consumers by lowering costs and allowing U.S. Customs and Border Protection (CBP) to focus its limited resources on higher-value imports.

Critics of the de minimis exemption repeatedly argue that it is a loophole that allows China to circumvent U.S. laws and tariffs. But from 2018 to 2021, CBP seized more than 400,000 de minimis packages. Last year, the government collected $44 billion in duties from China, more than triple the amount collected in 2015, before the de minimis threshold was raised to $800. Tariffs on imports from China accounted for 61 percent of the total duties collected by the United States last year, up from 42 percent before the de minimis threshold was raised.

In addition, while low-value imports are not subject to tariffs, they face heavy security and scrutiny, just like other forms of entry. All imports, regardless of value, are subject to U.S. drug laws, anti-forced labor laws, including the Uyghur Forced Labor Prevention Act, intellectual property rights, and other measures.

Critics have also wrongly suggested that the de minimis exemption is a primary source of the fentanyl epidemic. But that ignores the primary problem. According to the Drug Enforcement Agency (DEA), the fentanyl epidemic is primarily driven by Mexican cartels using Chinese chemical supplies and smuggling the drugs across the southern border.

Eliminating the de minimis exemption for imports from China or for all clothing imports wouldn’t change this, but it would mean a large regressive tax increase for American households.

Congress should consider alternative approaches, such as eliminating tariffs on the 79 percent of clothing that Americans import from countries other than China. Tariffs on those imports currently average 12.7 percent, incentivizing consumers to buy cheap clothing from China.

Lowering import duties to reduce clothing prices and encourage families to buy clothes from sources other than China is a no-brainer.