Solving The Big Problems That Come In Small Parcels

Small packages are shipped into the United States in huge volumes — nearly 1 billion last year, according to U.S. Customs and Border Protection (CBP). This commerce benefits small business owners and U.S. consumers who seek out imported goods like clothing, household items, spare parts or office supplies. They get access to duty free imports and expedited customs, which helps keep costs down and household budgets intact.

But bad stuff is also coming in these small packages, evading our laws and causing harm:

— The fake Louis Vuitton bag that looks good on your shoulder but undermines legitimate businesses.

— The cute top that was super cheap but made with forced labor.

— The discount e-bike that gets you rolling, but its low-grade aftermarket battery might catch fire in your garage.

— Even worse, the envelope that contains a lethal dose of fentanyl.

As a solution, some interest groups — including the textile industry, footwear industry, fabric industry, and steelworkers — have called for action limiting this type of trade with tariffs or a lowered de minimis threshold. Unfortunately, this is unlikely to work. Instead, Congress should encourage customs authorities and private actors to share necessary information to leverage modern, enhanced data-driven approaches to transparency.

De minimis is a Latin word that means too small to care about. Items imported into the United States that are below the de minimis value threshold are not subject to duties and enjoy expedited customs procedures. The volume of these small packages has been increasing over time, from 410 million in 2018 to nearly 1 billion today.

A major milestone occurred in 2016 when Congress increased the de minimis value threshold from $200 to $800. The combination of a higher threshold and growth in e-commerce platforms like Amazon
AMZN
, eBay and Etsy has opened access to a wide array of products at relatively low prices for millions of American business owners and households. The benefits have been well-documented.

Lowering the de minimis threshold back down to $200 is unlikely to make a difference, because the average value of a de minimis package remains about $50-55.

Eliminating de minimis trade altogether could be prohibitively expensive. It would mean dumping nearly a billion parcels into America’s mainstream port system, which is often characterized as fragile and ranks poorly, lagging behind the more automated and efficient ports of our trading partners. This would raise costs for businesses and consumers alike.

For instance, consider a typical consumer or small business buying an imported good for $50 on an e-commerce platform in the absence of de minimis trade. When the package arrives in the United States, the buyer would need to spend roughly $20 to hire a broker or pay their parcel carrier (e.g., FedEx
FDX
or UPS) to hire one. Next, they would incur a merchandise processing fee, which is a user fee to reimburse Treasury for services performed at the port of entry, of about $27. That $50 purchase is nearly doubled to $97, even before adding on tariffs. In other words, getting rid of the de minimis threshold could translate to an additional $47 billion in costs for consumers and business owners annually.

A better way to address the small parcel problem is with better transparency along the supply chain. Harnessing advanced data analytical tools and sharing necessary information between customs authorities and the importer, carrier and broker along the supply chain could help get the necessary information to the people and systems that can make a difference for the better.

Without better transparency along the supply chain, especially upstream foreign manufacturer information, CBP is limited in its ability to assess the risk. It is simply too costly to physically inspect every package.

For the past several years, CBP has been listening to stakeholders, developing Trusted Trader Programs to facilitate legitimate trade with over 11,000 private trade industry partners, building out their technical capacity, and doing research and analysis on what might work. They have a plan. It’s called the 21^st Century Customs Framework. You can watch a short video about it.

Counterfeits, products made with forced labor, faulty consumer goods, and deadly drugs are all serious problems. But tariffs or the de minimis threshold are not serious solutions. In fact, they are unlikely to even make a dent. Instead, enhanced technologies that improve CBP’s visibility into global supply chains can help deter and detect bad actors and empower authorities to interdict.

There will always be bad actors. That alone should not deny honest Americans the economic benefits of e-commerce and trade. Bad things are coming in these small parcels, but tariffs or eliminating the de minimis threshold would penalize everyone and raise prices in the middle of an inflationary cycle. Instead, the United States should modernize customs procedures to match the needs of today’s global economy.