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By Maggie M. Barnett – CEO, LVK
Regardless of who wins the U.S. presidential election in November, consumers and e-commerce companies can expect to see changes to Section 321 of the Trade Facilitation and Trade Enforcement Act. While some have heralded it as an essential growth factor for the U.S. direct-to-consumer market, many others, including politicians in Washington, have posited that the $800 de minimis value allowed by Section 321 devalues competition and allows foreign companies, like Temu and Shein (both based on mainland China), an unfair advantage over U.S.-based companies.
This topic has gained a lot of attention recently, as the popularity of Temu and Shein skyrocketed, especially after Temu’s catchy “Shop like a billionaire” Super Bowl jingle became an earworm this past winter. Current numbers indicate that of the 3 million e-commerce packages shipped into the U.S. daily under Section 321 clearance, at least one-third are from China.
How will a Trump or Harris administration disrupt the current status quo? Let’s examine how Section 321 could change under either candidate.
Most recent news
Last Friday, the Biden administration issued an executive action to prevent companies from exploiting the de minimis loophole. The administration also asked Congress to pass permanent legislation by the end of 2024 to codify these new protections.
A breakdown of the action
As stated in the brief from the White House, the “Notice of Proposed Rulemaking would exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962.”
Approximately 40% of all imports to the U.S. are covered under Section 301, including up to 70% of all textiles and apparel. This is in addition to the decision earlier this year to raise tariffs on certain U.S. imports, such as semiconductors, electric vehicles and more, to prevent further loss of intellectual property and technology from the U.S. to foreign entities.
These changes could happen in as little as 60 to 120 days and come as soon as Q4. However, it will probably not be implemented before the actual election. This article outlines other factors that could affect the actions taken by either a Harris or Trump administration as it relates to Section 321.
Harris: An environmental champion
With Friday’s announcement, it is evident that the Biden/Harris administration is committed to making changes to Section 321. This indicates that regardless of any other reasons, Harris will continue this action if she is elected.
Additionally, Harris has expressed concern related to Section 321 in the past and voted her convictions – primarily, that Section 321 imports are more harmful to the environment.
Almost all packages from China come via air, a transportation method exponentially increasing carbon emissions. On average, carbon emissions via air are 20 to 30 times more than ocean freight emissions. This type of pollution cannot be ignored when discussing the high volume of millions of packages daily.
Harris’ track record indicates she is a strong supporter of environmental initiatives. She voted against the United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement. She has cited concerns for worker protection and environmental impact as the primary reasons for caution around international trade.
In an X post following the vote, Harris wrote: “Our trade policies should lift up workers and grow the economy, but must also protect our environment and our future. By not confronting climate change, the USMCA fails to meet the crises of the moment.
“We can do better, and that’s why today I voted NO on the USMCA in committee.”
Trump: Harsher penalties for foreign entities
Trump raised tariffs on China during his first presidency and has been quoted as saying he will do so again should he win a second term. Numbers as high as 60% have been cited, which could deliver a harsh blow to China’s export business with the U.S. Additionally, increased scrutiny from European nations and Canada on Chinese exports places China in more of a hot seat than previously felt.
However, attention must also be paid to Trump’s tenuous relationship with Mexico. Many companies have moved operations — and jobs — from the U.S. to Mexico to take advantage of Section 321. The former president and his team have made Mexico and illegal immigration a rallying cry, which could indicate far-reaching effects on Section 321 and cross-border e-commerce. He has already pledged to reverse certain Biden administration rulings and vowed to close gaps in the border wall, which started during his presidency.
Current political ramifications for Section 321
While we have a few months to see which candidate will next steer Chinese economic policy, the current U.S. Congress has taken action to place parameters on China now. The proposed changes could offer a much more immediate impact to Section 321.
Customs and Border Protection suspends brokers
In a May 31 statement, U.S. Customs and Border Protection announced it was suspending customs brokers, which it felt “proposed an unacceptable compliance risk,” preventing them from taking advantage of the $800 de minimis exemption.
New bipartisan bill
A new bill has been proposed in Congress called the Fighting Illicit Goods, Helping Trustworthy Importers, and Netting Gains for America Act. If passed, this act would do the following to curtail Section 321:
- Close the current de minimis loophole for textile and apparel importers.
- Impose new penalties for violations.
- Increase data collection to better find and punish Section 321 offenders.
- Institute a $2-per-package fee to allow closer inspection of Section 321 goods.
This bipartisan bill has a much better chance to disrupt Section 321 in the long term.
Impact of the current announcement
The order issued on Friday did not include any of the above, primarily because Congress will have to take the lead to pass this legislation. These types of changes are not under the purview of executive privilege. Whether or not the increase in tariffs and further scrutiny will be enough to curtail Chinese imports is still unknown.
November results could bring change
It is almost guaranteed that a new administration will make changes to Section 321, including permanent ones. The increased chatter related to Section 321, the concern of Customs and Border Protection regarding illicit imports, and an increased workload have impacted these recent decisions.
Regardless, e-commerce companies that rely heavily on imports from China and Section 321 should anticipate further policy change. The best thing any company can do to prepare is stay advised of the latest news and legislation and keep your partners in the loop as changes become necessary. If your organization decides to go the proactive route and make changes before they are legally enforced, lay out an implementation plan that clearly states your steps.
Don’t underestimate the time it will take to make the needed changes or the strain it may place on your team. As with all things – whether foreign imports or presidential elections – change is possible, but it won’t be easy.
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