Ending a Longtime Tax Import Exemption Won’t Help Customs Agents

A US trade policy known as de minimis, which allows imports valued under $800 (per person, per day) to enter the US free of duty and taxes, has allowed supply chains to be nimble during a global pandemic and economic downturns, benefiting businesses of all sizes and helping drive the global growth of e-commerce.

US policymakers are now considering changing this policy, which could double the end cost of everyday products that we all purchase. Instead, they should view this moment as an opportunity to empower the growth of all US-based companies by focusing on practical improvements to enforcement without punishing responsible businesses.

De minimis is an exemption from paying duty that’s lower than the cost the government would spend in collection efforts. It saves consumers and the federal government money while requiring information used to assess risk at the border and enabling the same enforcement requirements as other types of shipments.

Most criticism of de minimis stems from a small number of overseas fast-fashion companies that have a high volume of product flow. But US businesses of all sizes, which also employ US employees, increasingly depend on access to manufacturing around the world to deliver for consumers and compete with big business.

If US policymakers are going to decide the winners and losers of international trade, they must understand exactly who will be affected most and how.

A June study conducted by Yale and UCLA professors found that weakening the de minimis exemption would function as a regressive tax, disproportionately impacting lower-income US zip codes, while harming small- and medium-sized businesses that rely on it for critical manufacturing inputs.

US supply chains will likely become severely congested due to the unnecessary diversion of Customs and Border Protection resources that will be tasked with collecting minimal revenue, at a loss, especially in more manual environments.
Eliminating de minimis would demand significant, long-term resources at ports of entry across the country. Proposed legislation, as well as a recently floated regulation from the Biden administration, aim to limit de minimis eligibility for goods impacted by Section 301 tariffs or originating from non-market economies.

Rather than strengthen border enforcement, these changes likely would encourage shipment through third countries and increase volume in areas where CBP has limited control over information accompanied by shipments.

Even more troubling is that applying Section 301 tariffs and excluding eligibility of products from specific countries or types of commodities would force CBP officers to collect minimal duties and could cost more in resources than the revenue generated. This would strain already limited staff and divert attention from detecting and addressing illegal shipments.

A September Oxford Economics study revealed that implementing the leading de minimis-reducing legislation would require billions in new congressional funding annually. For example, HR 4148 alone is projected to cost $3.2 billion in 2025, equivalent to hiring 39,000 CBP officers, while HR 7979 would require $1.6 billion of new funds, or the cost of 20,000 officers.

Similarly, the White House’s regulatory approach would require billions in new congressional appropriations for enforcement, given that CBP doesn’t keep the collections they are charged with assessing. The study also notes that CBP already faces a shortage of over 4,800 officers.

Even if federal policymakers change the avenue for shipments to enter the country, the high volume of shipments will remain and take longer to reach the doorsteps of businesses and consumers across the country, while requiring billions of additional taxpayer dollars. Removing the economic benefit of de minimis won’t encourage illicit actors to disclose their products to law enforcement.

There are several opportunities for Congress and the White House to improve enforcement across all ways that goods cross our borders without harming our economic competitiveness.

Federal policymakers should take a comprehensive look at the incoming information that CBP officers decipher every day. They need to fully adopt technology that improves the enforceability of US customs laws at ports and creates a scalable solution to address shifts in cargo volume.

For example, CBP should adopt commercially available computed tomography scanning and X-ray diffraction technologies, supported by artificial intelligence solutions. This would help officers validate information across all entry values while increasing targets for effectiveness and enforcement outcomes.

Congress has provided authority to—and should focus on—enabling CBP to better identify parties that ship unlawful items. CBP should have the full ability and incentive to suspend eligibility for companies who act irresponsibly.

But there is no reason to punish reputable, ethical companies for the actions of a few deceptive operators. Degrading de minimis treatment would harm low-income consumers and small businesses that export American products, and strain our already limited resources at the border.

It’s time to protect the benefits of de minimis and implement smart, targeted solutions that promote our economic security, enable our supply chains, and empower US consumers.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

John Pickel is senior director of international supply chain policy at the National Foreign Trade Council, a trade association that promotes an open, rules-based global economy on behalf of US-based businesses.

Write for Us: Author Guidelines