Commentary on Political Economy

Monday 13 November 2023


 Small packages bring the US big problems

Rana Foroohar · Nov 13, 2023

This week’s Apec summit in San Francisco, which includes 21 nations in the Pacific region, including the US and China, will cover any number of predictable topics, from trade relations to currency and debt issues. It will also cover an unexpected one: fentanyl. The highly addictive narcotic is responsible for some 70,000 drug-related deaths in the US. But it has also become an unexpected window into global supply chains and how they work — or don’t — in an era of deglobalisation.

Over the past few weeks, business leaders and politicians have been talking about how fentanyl is making its way into the US, and other countries such as Mexico, via small shipments of goods in amounts less than $800 that aren’t subject to the usual trade and customs barriers. These small international package shipments (whether of drugs, forced labour-made apparel, or any other banned substance) are extremely unlikely to be checked by customs and border authorities because they are exempt from the usual rules under “de minimis” loopholes.

Unfortunately, say some industry leaders in the US, these loopholes that are intended to allow Americans to buy, say, a rug made in Asia and have it shipped to the US without extra taxes or red tape, have become a route for drug mules and those wishing to smuggle counterfeit goods. Ecommerce has radically increased the number of small international shipments, which are made via Chinese fast fashion websites but also on any number of US-owned or other global ecommerce sites.

Even without concerns about criminal exploitation, the fact that the “de minimis” loophole allows parcels to bypass tariff and trade restrictions is under the spotlight in America. Roughly half of all such shipments are of apparel and the US textile industry, which has been hard hit by the rise of Chinese fast fashion companies like Shein and Temu, is raising loud objections.

Kim Glas, president of the National Council of Textile Organizations, recently testified in front of the House subcommittee about the “explosion in ecommerce shipments [which] has created a superhighway of orders through this gaping loophole, allowing nearly 3mn packages a day to come into the US duty-free and largely uninspected, effectively handing a free trade agreement to China and the rest of the world”.

She has a point. Customs data shows the US received more than a billion individual packages claiming de minimis preferences in the fiscal year ending in September 2023 — twice the 2019 level.

During that time, Chinese ecommerce providers have been expanding by leaps and bounds in the US. Shein’s monthly active users in America doubled to more than 30mn in the third quarter of 2023 relative to 2021. Nearly all these orders fall under the de minimis level, and studies have shown that at least some of the shipments contain Xinjiang cotton, which is restricted under the Uyghur Forced Labor Prevention Act (the platforms themselves deny wrongdoing).

But even as US manufacturers complain, other American companies, particularly big tech platforms, are getting rich by doing business with these Chinese apparel retailers. Shein and Temu have been blitzing the US marketplace with digital advertising to compete with Amazon and other American ecommerce retailers. That translates into big business for Silicon Valley companies. The research firm Moff– ettNathanson has estimated that about a third of Meta’s revenue growth in the nine months to September came from Shein and Temu. They are also increasingly active in Google ad auctions.

This brings home an uncomfortable truth for regulators, and for the Biden administration. While many US-based businesses are in favour of new laws and tariffs that penalise Chinese companies for doing business in America, there are plenty of US-based multinationals, particularly in finance and technology, that would love nothing more than to go back to business as usual.

Such companies have increased their lobbying efforts in Washington in recent weeks around the issue of de minimis rules. Chinese firms are spending more on DC lobbying as well. Shein has reportedly shelled out more than $1mn on it since 2022, and is hiring western executives to help it navigate criticism, including from a US China Economic and Security Review Commission report criticising the platforms’ business practices.

While all this plays out, one thing has become clear — the US Customs and Border Protection agency, which has responsibility for making sure that laws are not broken in incoming shipments, isn’t yet up to the task. Last year, according to Glas, the CBP seized and inspected only a fifth of a percent- age point of the $184bn worth of apparel imports to the US. In September, a bipartisan group of senators wrote to President Joe Biden urging him to use executive powers to increase enforce- ment and ultimately to end de minimis exceptions for ecommerce shipments of textiles and apparel.

Such a move would bring the US more in line with the EU, which has proposed a new digital customs system and the abolition of de minimis exemptions. If you are trying to limit distribution of fentanyl, apparel manufactured with forced labour or counterfeit European handbags, closing de minimis loopholes — whatever the ecommerce ramifica- tions — seems a necessary step.

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