‘Trivial’ Tariff Would Cost the Poor Billions

Sen. Sherrod Brown (D-OH) and many other legislators are attempting to impose a big tax increase on low-income families by ending the "de minimis" exemption (from the Latin for "pertaining to tiny or trivial things") in tariff law that spares goods valued under $800 originating from non-market economies like China. Senate Finance Chairman Ron Wyden has introduced separate legislation that would impose an average 14.7 percent tax on all low-priced clothing imports.

A recent National Bureau of Economic Research working paper concludes that entirely eliminating the de minimis exemption for imports from all countries would reduce net US welfare by $11.8-$14.3 billion while disproportionately harming lower-income and minority consumers. Economists Pablo D. Fajgelbaum and Amit Khandelwal calculated that, if the de minimis exemption were eliminated, people living in the poorest zip codes would face average tariffs of 12.1 percent versus an average tariff of just 6.7 percent for the richest zip codes. In addition, many small and medium sized enterprises rely heavily on the de minimis exemption.

Ending the exemption just for products from China and other non-market economies would also be costly. According to federal statistics, from 2018 to 2021 China accounted for 64 percent of US de minimis imports.

The federal government created a de minimis exemption for low-value imports in 1938 "to avoid expense and inconvenience to the Government disproportionate to the amount of revenue that would otherwise be 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 increased the exemption threshold several times over the years, most recently raising it to $800 in the Trade Facilitation and Trade Enforcement Act of 2015. That increase was designed to benefit businesses and consumers in the United States by reducing costs and allowing US Customs and Border Protection (CBP) to focus its limited resources on higher-value imports.

Critics of the de minimis exemption repeatedly suggest it is a loophole that allows China to evade US laws and tariffs. But from 2018 to 2021, CBPseized 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 increased to $800. Tariffs on imports from China accounted for 61 percent of total duties collected by the United States last year, up from 42 percent before the de minimis threshold was raised.

Moreover, while low-value imports are not subject to duties, they face heavy security and review like other forms of entry. All imports regardless of value are subject to US narcotics laws, anti-forced labor laws, including the Uyghur Forced Labor Prevention Act, intellectual property laws, and other measures.

Critics have also falsely implied 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 mainly driven by Mexican cartels using Chinese chemical supplies and smuggling drugs through the southern border.

Eliminating the de minimis exemption for imports from China or for all clothing imports would do nothing to change any of this, but it would impose a big regressive tax increase on American households.

Congress should consider alternative approaches, such as eliminating tariffs on the 79 percent of clothing Americans import from countries other than China. Tariffs on those imports currently average 12.7 percent, providing an incentive for consumers to buy low-value clothing from China.

Cutting tariffs to reduce clothing prices and to encourage families to purchase from sources other than China is a no-brainer.