Most Americans don't know that a regulatory loophole allows foreign vendors to ship directly to American consumers without a U.S.-based importer of record, filing an entry summary, or paying any duty or tax. All they need to do is allege that the value of the shipment is worth less than $800 in their country. It's called the de minimis regulation and is a loophole in federal law known as Section 321, which allows packages valued at less than $800 to enter the U.S. without facing any taxes, fees or inspection.
The de minimis loophole has crippled some manufacturing industries, undermined retailers, strained law enforcement resources, and facilitated the free flow of illegal and dangerous products as well as illicit drugs, particularly fentanyl, which is the leading cause of death for people ages 18-49.
The rule was once a long-standing administrative exemption, but now, as U.S. Senators Tammy Baldwin (D-WI) and Bill Cassidy (R-LA) correctly observe, it's "a trade loophole that is allowing China and other countries to undercut American manufacturers, let products made by slave labor get in the hands of U.S. consumers, and bring in illicit drugs like fentanyl into the country."
The de minimis loophole has connected every "fly by night" vendor in the world directly to American consumers without the oversight of customs. It means that overseas smugglers enjoy unrestricted access to the U.S. market because there is no way to inspect millions of packages every day.
Incredible Volume
In 2023, the de minimis rule allowed nearly three million packages a day to enter the U.S. largely uninspected and duty-free—60% of which originate from China, notorious for products made with slave labor and counterfeits, and the source of the majority of precursor chemicals used to make illicit fentanyl. In February 2024, the Wall Street Journal said the de minimis loophole caused imports to surge from 150 million packages in 2016 to 720 million in 2021—440 million packages were from China.
China has a new business model that connects American consumers directly to mainland Chinese manufacturers—no malls and no middleman. The companies that benefit are the importers, warehouses, and delivery systems, like Amazon, FedEx and UPS. Chinese companies SHEIN, Temu and foreign criminal organizations can also ship goods directly to U.S. customers and drug dealers. According to a fact-finding effort by the House Select Committee last year, SHEIN and Temu are likely sending almost one million apparel shipments per day thanks to the de minimis benefit.
"The de minimis loophole means that our own trade laws are granting bad actors like SHEIN and Temu an outrageous advantage over American manufacturers," said Alliance for American Manufacturing (AAM) President Scott Paul. "These Chinese companies have built billion-dollar businesses by exploiting de minimis, hooking American consumers on below-bargain-basement prices and supercharging a retail race to the bottom. There's a very real cost hidden behind these cheap wares, and it's paid by the men and women on the factory floor both here and abroad. The de minimis provision invites importers to cheat the system and to exploit their workers. The United States must close this loophole now."
The Textile Industry
Ten U.S. textile plants have closed, and hundreds of employees have been laid off due in part to the loophole, which acts as a back door to a flood of low-priced, subsidized imports from China, often containing cotton made with forced labor.
The duty-free de minimis trade remains a headwind for domestic textile producers. According to The Coalition for a Prosperous America, "Parkdale Mills, a yarn company, closed three of its four plants in Hillsville VA, and laid off 326 workers after closing a separate facility in South Carolina. In February, National Spinning said it will shut the doors to its last yarn-spinning facility in Whiteville, North Carolina, which had operated for 60 years."
A January 2021 New York Times article said the government's inability to truly enforce the floodgate of imported goods helped along by de minimis is "devastating" U.S. textile and apparel manufacturers. According to CPA's Domestic Market Share Index, domestic manufacturers make up roughly 12.2 percent of all apparel and leather goods sold here. The rest, some 82 percent, are imports.
In 2001, China joined the World Trade Organization and quickly became America's go-to manufacturer for everything from Nike sneakers to Ralph Lauren bath towels and golf shirts. According to the Bureau of Labor Statistics, textile fabric mills, textile furnishings, and cut-and-sew apparel have lost 182,000 jobs since 2002. when China entered our markets.
The Fentanyl Problem
The de minimis loophole is also being exploited by China and other foreign entities to facilitate a flood of fentanyl and other illicit drugs, products made with slave labor, into the U.S. market. Fentanyl has become so readily available that it killed more than 112,000 Americans in 2023 alone. It can be shipped straight from China and frequently with purities of more than 90 percent, according to the Department of Homeland Security (DHS).
Under de minimis, millions of small international mail packages are mailed directly to U.S. consumers daily, completely bypassing federal scrutiny. This loophole has contributed to our nation's public health crisis.
"We have long fought for resources to support law enforcement's efforts to combat fentanyl and its analogs," said Bill Johnson, Executive Director of the National Association of Police Organizations (NAPO). "Closing the de minimis loophole would help staunch the surge of illicit narcotics that are exploiting this exemption to wreak havoc across the country and protect and safeguard the lives of our children, families and friends. In this moment of crisis, we need to use every weapon we have to curb the unfettered flow of imported fentanyl."
Potential Solutions
Both Congress and President Biden have the power to close the de minimus loophole, which would save an estimated 20,000 lives per year and protect U.S. workers and industries. Rep. Earl Blumenauer (D-OR), ranking member of the House Ways and Means Trade Subcommittee, recently announced the formal launch of a coalition to reform the de minimus loophole in U.S. trade law.
He said, "The coalition we have assembled is a testament to the mounting pressure to close the de minimis loophole. De minimis is not just a threat to American businesses and consumers, as if that weren't enough, but it is increasingly contributing to the fentanyl crisis ravaging our communities. It is past time for Congress to act. We will not take 'no' for an answer."
Rep. Blumenauer has introduced bipartisan legislation known as the Import Security and Fairness Act. This bill would block non-market economies—namely China—from exploiting the de minimis threshold and require U.S. Customs and Border Protection (CBP) to collect more information on de minimis shipments to better understand the scope of de minimis abuse and inform other necessary reforms.
Michael Collins is the author of "Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity." He can be reached at mpcmgt.net.
