Long queues of trucks attempting to enter America are commonplace along Mexico’s border. Vehicles have recently lined up at the Otay Mesa crossing, which separates California from the city of Tijuana, to enter Mexico. The trucks do not travel far; they unload their shipping containers at newly constructed facilities barely 15 kilometers south of the border. The goods are then divided into thousands of little bundles and driven back to America. Tariffs are not imposed on such goods, despite the fact that they are manufactured in China and purchased in America. Call it the Tijuana two-step.
The two-step is a technique for certain shops to take advantage of a loophole in American trade rules known as the “de minimis” exemption, which means “too small to be trifled with” and permits parcels worth less than $800 to enter America duty-free. More than 1.4 billion shipments worth at least $66 billion are estimated to arrive under the exemption this year, up from 500 million in 2019 (see to chart 1). The rule reveals faults in Uncle Sam’s tariff strategy: brick-and-mortar businesses who buy from China must pay charges, yet their offshore competitors avoid them entirely. Some legislators now seek to close the loophole, which would disproportionately affect poor Americans.
Trade using the exemption—mostly normal imports of small packages rather than any trickery—has grown so enormous that it distorts national figures. Seven out of ten de minimis shipments arrive from China. Shein and Temu, two prominent online merchants with Chinese supply chains, alone account for three out of ten. Based on China’s proportion of de minimis imports, our findings reveal that America’s trade imbalance with China is 13% bigger and 5% larger with the rest of the world than official figures show. This could help explain a major conundrum in Sino-American trade data. China claims to export approximately $73 billion more than America believes it receives, and some analysts believe the genuine deficit could be greater than $150 billion. According to figures from America’s Customs and Border Protection (CBP), products priced below $800 account for at least $37 billion of the deficit.
Source: Economist
