Trump’s Costly De Minimis Trade Gambit
Dan Mitchel
February 25, 2025
Protectionism is illogical. It is based on the notion that it is good to have higher prices and inefficient allocation of resources.
Which is why trade barriers inevitably lead to lower growth and fewer jobs. All based on an utterly irrelevant statistic.
But politicians like protectionism because the small group of beneficiaries are usually visible and will reward lawmakers while the much larger number of losers are spread out and are much less likely to understand why they're economic circumstances have declined.
But that's not always the case. Sometimes the damage of protectionism is very obvious. And that's what happened when Trump unilaterally decided earlier this month to impose trade taxes on e-commerce shipments from overseas by ending "de minimis" protections (currently, consumers don't face any trade taxes on purchases under $800).
The damage was so quick and so obvious that Trump had to reverse the policy.
To summarize, Trump's protectionist gambit immediately produced chaos and higher prices.
So the President backed down, at least temporarily.
In a new report for the Center for Prosperity, I explain why he should back down permanently. Here are some excerpts, starting with an explanation of the topic.
...a recent report from the U.S.-China Economic and Security Review Commission (USCC)...highlights several reasons why American policy makers should be concerned about the actions of China’s government. ...Unfortunately, the serious analysis of issues such as foreign policy and China’s economic slowdown is undermined by sections that promote protectionism. In particular, Chapter 4 of the report urges policy makers to impose import taxes on “de minimis” shipments valued at under $800. That would severely restrict American consumers from making online purchases from foreign companies... The only real-world impact of limiting online purchases is that consumers would have fewer options and pay higher prices. This would be particularly harmful to middle-class and lower-income households, both of which devote a higher percentage of their income to consumption.
I then share some of the expected costs if Trump follows through on his tax increase.
Eliminating de minimis protections would have very unfortunate effects on national prosperity, global commerce, and consumer welfare. A review of recent research underscores the adverse impact. It would cost consumers $13 billion annually, with low-income households bearing a disproportionately high share of the burden. Getting rid of de minimis treatment would require thousands of new bureaucrats that cost more than $3 billion annually. An academic study estimated that eliminating the de minimis treatment would lower aggregate well-being by as much as $13.0 billion and disproportionately hurt lower-income and minority consumers. The price of shipped goods would rise by 40 percent-55 percent thanks to taxes, logistic costs, and other burdens.
The bottom line is that Americans will be hurt if Trump ends de minimis protections. Not quite at the level of Herbert Hoover, one assumes, but it
would nonetheless be an unforced error that will partially offset the benefits of his pro-growth policies such as deregulation and extending the 2017 tax cuts.