When de minimis is no longer minimal

As all obviously know we’re against tariffs. But still worth explaining this:

Why is Trump ending the ‘de minimis’ tariff loophole on low-value imports?

It’s not a loophole. Or at least it didn’t start out as one.

The essential starting point is that tariffs are only one part of the costs of trade. Transport’s another, being able to communicate between buyer and seller another and it’s possible to compile a list as long as a tariff schedule of further such costs.

Back when the de minimis exemption applied to luggage carried with a traveller. The US system has applied that to parcels sent as well - the European system has long had much lower minimis for parcels than it has for a traveller’s luggage.

So, transport gets hugely cheaper - as do communications and so on. It then becomes viable to supply small parcels from the other side of the world. That exemption starts to look less and less viable.

We had our own version of this in the UK - those CDs coming in from Jersey etc. They were - just - under the VAT limit so could be supplied free of that. We then changed that.

The change here in the US rules? Just one of those things that was obviously going to happen at some point. As all the other costs of trade have fallen so far what started as allowing tourists to bring back souvenirs without too much fuss has become an entry point to the economy as a whole.

The bigger point though. We’re often told that us neoliberals managed to impose free trade upon the world (we wish, eh?). The proof being how GATT and WTO lowered tariffs and packed up all the good jobs to send to foreigners. Which is;t wholly true. For jet planes and container ships and telecoms and the internet made trade so hugely cheaper that the explosion of global trade was going to happen anyway. Tariffs would have to have been raised - immensely - to stop it.

The proof? The US did double and more tariffs after their Civil War. Trade kept on rising too - the ocean going steamship lowered total trade costs even in the face of those tariffs.

Which brings us to the real point here. What determines the cost of trade is not tariffs alone, it’s all the costs of trade.

Tim Worstall