The danger in degrading de minimis for US supply chains, consumers and businesses

© Vladyslav Starozhylov

Several legislative proposals have been introduced in US Congress over the past few months that would degrade the de minimis tax exemption. Put simply, de minimis exempts goods in the US valued below $800 from paying duty. All other US enforcement laws apply to de minimis, and Customs and Border Protection (CBP) has repeatedly stated that it enforces all other laws.

But policymakers should understand that degrading de minimis, now the most common way goods enter the US economy, would have profound unintended consequences for American businesses, consumers and supply chains at a particularly vulnerable time.

It’s worth taking a step back to examine why de minimis has been a fixture of American customs and trade policy for over a century.

A recent study by Yale and UCLA economics professors found that efforts to degrade de minimis would result in up to a $14bn economic loss for Americans, and disproportionately hurt low-income and minority consumers.

The study confirmed that a rollback of current de minimis policy would be a regressive tax on the lowest-income zip codes, who make 74% of direct purchases using de minimis to increase their purchasing power, currently being squeezed by inflation.

Without de minimis, the flow of goods entering our country would be slowed, hampering businesses and consumers with higher prices and longer wait times. Current authorities provide the ability for customs officers to enforce US laws without requiring the completion of cumbersome processes related to duty calculation.

As a baseline, federal agencies currently receive information for de minimis shipments, including the sender, recipient, value, country of origin, detailed product description and more, to inform risk assessment. Additional data was also received on almost 80% of de minimis shipments so far this year through the Entry Type 86 test and 321 data pilot.

Nearly 90 countries around the world provide duty-free treatment for low-value goods. Efforts to weaken our de minimis policy are being noticed by other governments, which would be more likely to reduce or eliminate their respective de minimis standards.

US exports would then be subject to customs duties when entering those economies, where duty rates, on average, are much higher. Degrading de minimis would create a race to the bottom that increases the end cost to consumers and reduces the competitiveness of American businesses in the global economy.

In her testimony during a Senate Finance Committee hearing, Paula Barnett, a small business owner from Brownsville, Oregon, said, “De minimis customs exemptions are the single greatest tool policymakers can use to help small businesses export their goods.”

There are several opportunities to improve enforcement with de minimis and all other avenues where goods enter our borders without degrading the economic benefits.

First, CBP should adopt technology that uses public-facing and law enforcement information to validate cargo data provided across all values, and drives enforcement across the ways that goods arrive in the US.

Second, a whole-of-government approach should be adopted to improve information sharing. In the same way CBP uses data to identify risky cargo, the ability of 47 partner government agencies to execute their regulatory operations would be enhanced by sharing existing data more widely and efficiently.

Finally, Congress should require CBP to issue findings and seek feedback on next steps related to the Entry Type 86 and 321 data that have been a test and pilot, respectively, since 2019.

Proposals such as the Import Security and Fairness Act (S 2004 and HR 4148) and End China’s De Minimis Abuse Act (HR 7979) would aggravate inflation, but would not improve enforcement in de minimis or other cargo streams, where more tailored approaches would actually improve enforcement outcomes.

Building on the established foundation of de minimis to improve enforcement capability across all entry types offers a practical way to strengthen our economic competitiveness without straining our ports, slowing supply chains and increasing inflation for the American people.

John Pickel is senior director of international supply chain policy at the National Foreign Trade Council. John previously served in the Department of Homeland Security and in various roles at CBP, where he advised on de minimis and trade enforcement issues for over a decade