Concerns about damage to domestic industry due to the abolition of small-value duty exemptions on Chinese products in the U.S.

On the 2nd, President Trump announced a policy of imposing reciprocal tariffs on countries with trade deficits. It was announced that the reciprocal tariff rates for each country were set in consideration of differences in tariff rates for U.S. products and non-tariff trade barriers such as exchange rate manipulation, unnecessary permits, and quarantine, but in reality, it is presumed that the U.S. trade deficit and the import amount of the other country served as important criteria.

In addition, President Trump also declared that he would cancel tax exemption benefits for small parcels originating from China and Hong Kong. Previously, in early February, it had already announced the abolition of duty-free benefits due to the importation of fentanyl into the United States, but it was overturned the next day due to confusion in field operations at the time. The policy of withdrawing duty-free benefits for small parcels originating from China and Hong Kong, which was finally announced, will take effect from May 2.

The target is goods priced under $800 that are manufactured in China and Hong Kong and shipped to the United States, and tariffs are applied at 120% based on the product value. A fee of $100 per transaction will be charged from May 2 to 31, and a fee of $200 per transaction will be charged from June 1. Transporters must hold a certain level of deposit to guarantee payment of taxes and fees. Additionally, it is necessary to submit mail-related information and proof in accordance with the format established by U.S. Customs and Border Protection (CBP).

Currently, the volume of small parcels eligible for duty exemption in the United States is estimated to be approximately 4 million per day as of 2024. Annually, it is approximately 1.4 billion, of which 60% are estimated to originate from China. Therefore, the abolition of the small tax exemption system for Chinese products is expected to have a significant impact on American consumers.

In addition to the United States, major countries such as Korea, Japan, and the EU are also considering abolishing the duty-free system for low-value goods. This is because low-priced Chinese goods have been flowing into their countries in large numbers under the small-value duty-free system, disrupting the market.

Looking at the small tax exemption systems of major countries, the duty exemption limit is $800 in the US, $150 in Korea ($200 for customs clearance from the US), 10,000 yen in Japan, and 150 euros in the EU, and you can see that the US has a higher tax exemption limit than other countries.

The small tax exemption limit in the United States was originally $200, but was relaxed to $800 as of 2016. Since then, as e-commerce has grown rapidly during the coronavirus pandemic, problems such as increased drug smuggling through small packages and deepening China's deficit have grown, which led to a movement to abolish the small tax exemption system even within the United States at the time. And eventually, the second Trump administration announced the abolition of the small parcel tax exemption system for products originating from China and Hong Kong.

As the market is disrupted by the large influx of low-priced Chinese goods, the EU is also exempting tariffs on low-value goods from July 2021, but imposing value-added tax. Starting in March 2028, tariffs will also be imposed on small-value items less than 150 euros, so it appears that the duty-free system for small-value items will eventually be abolished.

In the case of Korea, as the e-commerce market grew rapidly during the coronavirus pandemic, Chinese e-commerce companies such as Ali Express, Shein, and Temu also became active in entering Korea. However, while Chinese products receive benefits such as exemption from customs duties and KC certification through the small-value duty exemption system, domestic businesses cannot apply small-value duty exemptions to goods for sale, so they have to pay customs duties and obtain related KC certification for all imported goods, which has become a problem of reverse discrimination.

As President Trump revoked duty-free benefits for small parcels originating from China and Hong Kong, Chinese e-commerce companies that have been hit hard in the U.S. market are more likely to target the Korean market, even if it means dumping product prices. And since Korea has a very low tariff rate compared to China, there is a risk that Chinese products will be imported in large quantities into the country for indirect export to the United States.

Therefore, support measures are desperately needed to protect the domestic manufacturing industry, which is inevitably losing out in price competition with Chinese products. In addition, it seems necessary to revise the system appropriately so that the original purpose of the tax exemption system for small items, which is to improve the convenience of people's lives, can be revived.
 

Small Business Team

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