The Biden Administration’s Misguided Trade War with China

T he Biden-Harris administration has fired the latest volley in the ongoing trade war with China, imposing restrictions on what is called the de minimis exemption on imports. The Latin expression essentially means “too trivial to worry about,” and the exemption means that goods worth under $800 imported from abroad don’t have to go through the customs procedures that more expensive goods do. While the administration has dressed up its order in high-minded terms, the change is blatantly protectionist. The people who bear the costs will not be the Chinese government or even Chinese companies but middle-class American consumers.

For many years, the de minimis exemption limit was $200. Then, Congress passed the Trade Facilitation and Trade Enforcement Act of 2015, having recognized that an increasing number of small businesses and consumers alike found that level too low for their purposes. Congress found that higher thresholds for the value of articles that may be entered without burdensome paperwork and free of duty provide significant economic benefits to American businesses and consumers as well as the overall U.S. economy through costs savings and reductions in transaction costs.

It therefore raised the exemption to its current $800 level.

The result was an explosion of business in the direct-to-consumer international market. Platforms arose that allowed the consumer to gain significant discounts on purchases of things like consumer electronics and apparel. Some of these became the butt of jokes, famous for their shoddy merchandise. Others, however, demonstrated their value and have become the go-to source for middle-class parents to clothe their growing families. Research by Pablo Fajgelbaum of UCLA and Amit Khandewal of Yale found that over a billion shipments qualified for the exemption in 2023, up from 110 million in 2012.

Moreover, the responsiveness of these businesses to consumer demand has lessened the ability of fashion houses to dictate what the next season’s style would be. As a result, these businesses produce far less consumer waste — no seasonal leftovers going first to outlet stores and then to landfills.

This is why the apparel market is the primary target of the exemption restrictions, rather than fentanyl shippers or purveyors of unsafe electronics, which would obviously be more appropriate targets for enforcement action. The order boasts that the restrictions will affect “70 percent of textile and apparel imports from China.” Yet these imports are not risks to health and safety, unlike fentanyl. Instead, the White House order amounts to a favor to domestic apparel manufacturers that want to preserve high prices by reducing competition.

The common rejoinder these days is that higher prices are actually worthwhile to protect American jobs and industries. Yet we should always remember who bears the costs of such protection — the middle-class consumer. Indeed, it has been low-income households that benefited the most from the rise in the de minimis exemption.

According to Fajgelbaum and Khandewal, “74% of direct shipments imported by the poorest zip codes are de minimis compared to 52% for the richest zip codes. Furthermore, the share of de minimis shipments from China declines with income: 48% for the poorest zip codes compared to 23% for the richest.” They conclude that eliminating the exemption would decrease aggregate welfare by about $12 to $14 billion, with low-income and racial-minority households bearing most of the cost.

The administration’s proposed rule might prove even more costly than that. It requires “including the 10-digit tariff classification number and the person claiming the de minimis exemption” on all such imports. Such added bureaucracy will almost certainly dissuade more buyers from making purchases that would qualify for the exemption, which presumably is the idea.

There are doubtless those in the protectionist wing of the Republican Party who will support this action, although when a similar idea was floated in the Trump administration, bipartisan groups of House and Senate members opposed it. As the senators noted then, jobs have been created by the raised exemption: “U.S. companies have increased domestic infrastructure and technology investments and hired thousands of U.S. workers to support the growth of e-commerce and consumer demand.” This proposed rule puts those jobs in jeopardy.

In short, the administration is proposing to threaten American jobs and businesses, reduce consumer choice, and impose billions of dollars of extra costs on low-income households to help out uncompetitive domestic businesses that could probably use some real regulatory relief. Advocates of trade wars would do well to think about trade-offs instead.