Last year, Amazon AMZN earned a staggering $21 billion. And much of that profit came directly from Amazon’s position as China’s online marketing machine. China now accounts for roughly 40% of all Amazon sales, and an estimated 75% of all new sellers on Amazon are Chinese companies.
Unfortunately, domestic U.S. manufacturers and retailers are on the losing end of this arrangement. Beijing already massively subsidizes its state-owned factories—which allows them to charge artificially low prices.
But a 2016 change to U.S. customs law has actually helped Amazon to import even more Chinese products—and to do so while avoiding U.S. tariffs, taxes, and regulatory oversight. Unless Congress acts, Amazon will keep helping Chinese companies seize more market share from U.S. manufacturers.
No tariff on insignificant shipments
At issue is something known as the “de minimis” threshold for products shipped into the United States. The de minimis provision was written into U.S. customs law almost 100 years ago, and was intended to save the federal government the trouble of assessing tariffs on small, inconsequential (or in Latin, “de minimis”) items mailed from overseas.
The de minimis threshold was set at $1 in the 1930s, and was gradually increased to $5 by the 1990s. However, in 2016, the threshold was abruptly raised by Congress to $800.
Why was the de minimis threshold suddenly boosted so high? Put simply, this was a coup for Amazon and express shippers that allowed them to start importing mass shipments of goods valued at less than $800. They could now bring in endless amounts of consumer goods while avoiding the traditional process of customs bonds, manifest information, tariffs, and taxes.
With e-commerce sales exploding, Amazon and other online retailers have been able to exponentially boost their sales and profits. Amazon’s sales revenue last year totaled over $386 billion. And according to Harsh Khurana, the CEO of WeCultivate, roughly 52% of sellers across Amazon are based in China, meaning Amazon is funneling extraordinary amounts of money to Chinese companies.
Alarming growth rate
The change in the de minimis rule undoubtedly aided this increase. U.S. Customs and Border Protection data for fiscal year 2020 counted 768 million de minimis shipments into the U.S. And only three months into Customs’ 2021 fiscal year, the agency has tracked 662 million de minimis shipments. This is an alarming growth rate.
The change in the de minimis threshold has shattered traditional business relationships—and eliminated much of the longstanding vetting of products imported into the country each day. Amazon’s mass import of small packages means that goods are shipped directly to U.S. consumers from obscure overseas vendors. That makes regulatory oversight impossible, and also bypasses the current 25% tariff on Chinese goods. In fact, as long as a foreign vendor claims its merchandise is valued at less than $800, its goods face no U.S. taxes or tariffs at all.
It’s a pretty stunning arrangement—and it ends any hope that U.S. bricks and mortar retailers can hope to compete fairly with Amazon. It also means that untold millions of potentially dangerous or counterfeit products continue to arrive in the U.S. each day. Particularly disturbing is the fact that over 90% of all intellectual property seizures come through international mail and express shipping. And 83% of those seizures originate in China.
Ironically, China has its own de minimis threshold—a mere 50 yuan, or roughly $7.82—less than 1% of America’s $800 threshold. That means China readily imposes import duties on even the smallest items sent from the U.S.—a far cry from the generous $800 the U.S. extends in return through the current de minimis level.
Catastrophic arrangement
This is an unsafe arrangement, and it’s catastrophic for the nation’s manufacturers and in-store retailers. Congress should immediately restore America’s de minimis threshold to an amount Americans would actually consider as “low value.” Adjusted for inflation, the old $5 level would be $9 today—still higher than China’s rate, and perfectly reasonable.
If Congress fails to fix the de minimis problem, U.S. producers and retailers that form the backbone of communities nationwide will continue to suffer. It’s past time for Washington to tackle this disparity and correct the failings of the “Amazon economy.”
Charles Benoit is trade counsel at the Coalition for a Prosperous America, a nonprofit organization that represents manufacturing groups, agricultural organizations, and labor. Follow him at @charles_benoit
This post was originally published on Market Watch
