The Trade Law Loophole Fueling the Fentanyl Crisis

A small and largely unknown loophole in U.S. customs law might be contributing to the deaths of thousands of Americans and allowing shady Chinese businesses to skirt U.S. tariffs. Now, a bipartisan group of lawmakers, law enforcement groups, and nonprofits are aiming to close it.

The provision in question is known as the “De Minimis loophole,” from the Latin expression roughly translating to “regarding minimal things.” In essence, the rule allows any package valued at $800 or less to enter the United States without any taxes, fees, or, crucially, inspections.

The loophole was first created by Section 321 of the United States Tariff Act of 1930, sometimes referred to as the Smoot-Hawley Tariff Act. The bill, which was signed into law by President Herbert Hoover, was one of the most significant trade laws of the 20th century, aimed at protecting American farmers and businesses from cheap foreign goods.

Notably, the original threshold for the loophole outlined in Smoot-Hawley was $200. In 2016, however, President Barack Obama signed legislation that raised it to $800.

Unsurprisingly, the De Minimis loophole has become a favorite method for drug traffickers to smuggle fentanyl and other deadly substances into the United States, along with a convenient way for Chinese manufacturers to evade more stringent tariffs on Chinese goods.

As the Wall Street Journal reported on March 1, “so far in Fiscal Year 2024, at least 485 million packages have entered the U.S. under the provision” – compared to 685 million packages that came in via De Minimis in all of Fiscal Year 2022.

Two particularly egregious abusers of the loophole are Chinese companies Temu and Shein, online marketplaces for consumer goods which have been accused of using forced labor. According to findings from the House Select Committee on the Chinese Communist Party released last year, “Temu and Shein are building empires around the de minimis loophole” and collectively have paid $0 in import duties to the United States.

Temu and Shein have been particularly damaging to the American textile industry by flooding the U.S. market with cheap Chinese clothing. Kim Glas, president and CEO of the National Council of Textile Organizations, recently told CNBC that “De Minimis is a wildfire out of control, killing our manufacturing sector and jobs, destroying local communities and facilitating illegal, illicit and dangerous products into the U.S.”

Republican Mike Gallagher, Chairman of the House Committee on the CCP, revealed in a March statement that “no less than 94% of all import transactions now enter the U.S. through De Minimis rules, accounting for 90% of all illegal narcotics, agricultural goods, and counterfeit seizures by customs.”

“Exploitation of the de minimis exemption is accelerating the export of American jobs and giving Chinese companies using Uyghur forced labor a complete pass,” Gallagher continued. “We can’t expect American companies to compete with foreign companies that don’t have to pay taxes. Unless Congress takes urgent action, American retail will be forced to shift US operations and jobs to China.”

Congressional Democrats have also spoken out in favor of eliminating the De Minimis loophole. Rep. Earl Blumenauer of Oregon, the ranking member of the House Ways and Means Subcommittee on Trade has introduced the Import Security and Fairness Act, a bill that would target Chinese exploitation of the De Minimis loophole and require U.S. customs authorities to collect more information on shipments coming into the United States.

“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,” Blumenauer recently said. “It is past time for Congress to act. We will not take ‘no’ for an answer.”

A new group called the Coalition to Close the De Minimis Loophole was also recently launched to raise awareness about the dangers of the provision to American citizens and businesses. According to the Coalition for a Prosperous America, the group represents “thousands of voices, from the families of victims of fentanyl fatalities and nonprofit and nonpartisan organizations to labor unions, domestic law enforcement associations, domestic manufacturers, and business associations.”

“The Coalition is dedicated to increasing awareness and education around the harmful impacts of de minimis,” a webpage dedicated to the group reads.

In an era of growing partisan divisions and with a hotly contested presidential election now in full swing, closing the De Minimis loophole may be one of the few opportunities for broad bipartisan agreement. For this at least, Americans can be grateful.

Andrew Shirley is a veteran speechwriter and AMAC Newsline columnist. His commentary can be found on X at @AA_Shirley.

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.