A bipartisan group of members of Congress is promoting a change to longstanding customs laws that would punish American consumers and small businesses. They seek to scale back, or even eliminate, the provision that allows duty-free imports of low-value parcels, including those ordered over the internet.
In its current form, the de minimis law permits low-value parcels (up to $800) to reach US consumers and business firms free of tariffs. This is exactly the same exemption enjoyed by Americans returning from abroad. In 2021 (latest data available), some 771 million parcels entered the United States under the de minimis provision, covering goods valued at $40 billion (under 2 percent of total US merchandise imports).
Three misleading arguments are advanced for the proposed change. The first argument is to harm Russia, China, and perhaps other adversaries. The second argument is to enshrine reciprocity in the US tariff wall. The third argument is to curtail imports of illegal products, such as fentanyl.
All de minimis parcels are screened by the US Customs and Border Protection (CBP) with advanced equipment to detect illegal and dangerous merchandise. About half of these parcels arrive through customs brokers who submit manifests with the same detailed information required for high-value imports.
De minimis gives a leg up to two groups of Americans who are too often overlooked in trade policy: consumers and small businesses. Thanks to the internet and de minimis, consumers can order from distant suppliers with the click of a mouse, while small business firms can find just the right input at a competitive price.
Misleading arguments for abolishing these benefits underlie both the De Minimis Reciprocity Act, introduced by Senators Bill Cassidy (R-LA) and Tammy Baldwin (D-WI) (S.1969) and the Import Fairness and Security Act, introduced by Senators Marco Rubio (R-FL) and Sherrod Brown (D-OH) and by Representatives Neal Dunn (R-FL) and Earl Blumenauer (D-OR-3) (S.2004 and H.R.4148).
Aiming at China and hitting Americans
De minimis imports from China have increased steadily since 2012, from 14.4 million parcels to a whopping 297.5 million parcels in 2021. Accordingly, both de minimis bills currently floating through Congress would exclude parcels from Russia, China, and other countries from the de minimis benefit. The goal is to harm foreign suppliers, especially China. But in practice, US tariffs in the absence of de minimis, along with more paperwork costs and brokerage fees, will be added to prices paid by US consumers and small business firms. Contrary to statements from former President Donald J. Trump and the congressional sponsors of de minimis legislation, empirical evidence shows that US tariffs and handling costs are paid by US importers, not by foreign exporters. As the National Foreign Trade Council (NFTC) Fact Sheet illustrates, a $50 parcel that reaches an American consumer without the benefit of de minimis will entail expensive paperwork (costing about $27), a brokerage fee (costing about $20), plus the tariff. So, a parcel that might cost $50 under current law could cost a consumer or small business almost $100 without de minimis.
Moreover, by abolishing de minimis entries for parcels, the legislation would favor affluent Americans returning from overseas travel by comparison with less affluent Americans who buy the same merchandise through the post office. Congressional sponsors are not disposed to incur the wrath of affluent travelers by slashing their duty-free allowance of $800.
The foolishness of reciprocal tariffs
President Trump floated the idea of imposing reciprocal tariffs. Under his proposal, US tariffs on imports from Country A would be same as Country A’s tariffs on US exports. Since the United States trades with more than 150 countries, the US tariff schedule—already a complex document—would become a nightmare.
Adding confusion, every time a foreign country changed its tariff, the US would change its own schedule. Incentives for circumvention would skyrocket as exporters sought to declare a zero- or low-tariff country—perhaps Singapore or Hong Kong—as the origin of shipments. Some exporters are already doing this to help American importers avoid paying import duties and tariffs on Chinese goods. The multinational corporation Strader-Ferris International, for example, exploits both the $800 de minimis limit and the Canadian government “duty drawback” program by importing goods from overseas to Canada first and then sending them to the United States duty free under the US-Mexico-Canada Agreement (USMCA), ultimately rendering these imports free of any Canadian or US import tariff.
Thankfully, the bad idea of reciprocal tariffs never made its way into US law during Trump’s presidency. However, in the USMCA revision of the North American Free Trade Agreement (NAFTA), a footnote was slipped in that enabled the United States to impose reciprocal de minimis thresholds on parcels arriving from Mexico and Canada. The USMCA raised Mexican and Canadian de minimis thresholds to about $117, an improvement but still much lower than the US threshold of $800, enacted in March 2016.
Fortunately, when USMCA was ratified in 2018, there was no Congressional appetite for slashing the US threshold. However, the De Minimis Reciprocity Act would do just that, creating an array of thresholds depending on the country of origin, from under $20 to around $640 (Australia). The lower threshold would apply to express and postal shipments, but not to Americans returning with merchandise from vacations abroad. Complexity alone would be challenging, and again the incentive for creative circumvention would be great. The price of lower thresholds would, of course, be paid by Americans.
Moreover, as British economist Joan Robinson wrote in her Essays in the Theory of Employment (1947), it makes no sense “to drop rocks into our harbors because other nations have rocky coasts.” Similarly, it makes no sense to harm American consumers and small businesses with a lower de minimis threshold just because Mexico, Canada, and other countries harm theirs.
No solution to the fentanyl crisis
Congressman Earl Blumenauer (D-OR) claimed in support of the Import Security and Fairness Act, “There is virtually no way to tell whether packages that come in under the de minimis limit contain products made with forced labor, intellectual property theft, or are otherwise dangerous.” This statement ignores the extensive screening, using high-tech methods, that the CBP performs on all arriving merchandise, whether bulk or de minimis. To be sure, some imports of illicit and dangerous merchandise escape the screening technology. The only way to guarantee perfect safety is to prohibit all imports, just like the only way to prevent all airplane accidents is to prohibit flying. But society chooses to accept some risk as the price of enjoying beneficial activities—whether imports, flying, or many others—while doing its best to minimize the risk.
One risk associated with imports is fentanyl. In 2022, fentanyl topped the list for causing more than 100,000 American deaths from overdosing illegal drugs. This is a true crisis. But eliminating de minimis is not the way to address the crisis.
The vast majority of fentanyl enters the United States in bulk via ships and trucks, often through Mexico, and is manufactured from Chinese precursor chemicals. By contrast, air cargo is the dominant mode for transporting de minimis parcels. For fiscal year 2023, CBP is on course to seize about 1.2 billion doses of fentanyl, but only 3 percent of these will be from air cargo. The logic of banning de minimis parcels as a solution for the fentanyl crisis is on par with the logic of banning automobiles in Michigan (population 10 million) as a solution for national auto deaths (some 43,000 in 2022 in a population of 334 million). That “solution” makes no sense but would inflict considerable harm. Even if de minimis parcels were totally abolished, fentanyl shipped in bulk would still reach millions of Americans.
One estimate indicates that abolishing de minimis would require CBP to hire thousands of new officers, probably costing far more than any new tariff revenue. This is the wrong way to solve a problem that technology can better address. CBP is already using sophisticated surveillance equipment to detect fentanyl and other illegal merchandise in de minimis parcels and other imports. FedEx, UPS, and DHL have their own sophisticated means of detecting and banning illegal parcels. Far more sensible than curtailing de minimis, Congress should provide CBP with funds to enlarge its suite of equipment to screen parcels.
Though Congress may see revoking de minimis benefits as killing three birds with one stone, the reality of such a policy would be a greater tariff burden borne by consumers and small businesses, sky-high incentives for US tariff circumvention, a nightmarish US tariff schedule, and a negligible dent in the fentanyl crisis. In its quest to punish Russia and China, Congress should be vigilant not to punish its own constituents.
1. De minimis data from US Customs and Border Protection (available upon request). Total US merchandise imports for 2021 were $2.9 trillion, per UN Comtrade Database. ($40 billion/$2.9 trillion)*100 = about 1.4%.
2. De minimis data from US Customs and Border Protection (available upon request).
3. For empirical studies on who pays the tariff and the impact of tariffs on the US economy, see
Mary Amiti, Stephen J. Redding, and David E. Weinstein, “The Impact of the 2018 Tariffs on Prices and Welfare,” Journal of Economic Perspectives 33, no. 4 (2019): 187–210; Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy, and Amit K. Khandelwal, “The Return to Protectionism,” Quarterly Journal of Economics 135, no. 1 (November 28, 2019): 1–55; Kyle Handley, Fariha Kamal, and Ryan Monarch, “Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism,” NBER Working Paper 26611, National Bureau of Economic Research, January 2020; Xavier Jaravel and Erick Sager, “What Are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models,” January 2023; Katheryn N. Russ, Jay Shambaugh, and Jason Furman, “US Tariffs are an Arbitrary and Regressive Tax,” VoxEU, Center for Economic Policy Research, January 12, 2017.
This publication does not include a replication package.