Trade ‘loophole’ used by China should be closed, House Democrats tell Biden

House Democrats called on President Biden to end a U.S. trade provision that has been boon for China’s e-commerce companies and drawn criticism from some who argue that the rule is an unfair and potentially dangerous loophole.

A majority of Democrats in the House of Representatives signed a letter sent Wednesday that called for quick executive action to address what is known as the de minimis provision in U.S. trade law, which lets shipments valued at $800 or less enter the country with relatively little scrutiny.

Until recently, the de minimis program operated mostly to allow individuals to avoid paperwork and tariffs on low-value gifts sent from abroad and souvenirs brought back after travel, and it isn’t appropriate for the commercial packages entering the U.S., the 126 lawmakers who signed the letter wrote. The group includes Rep. Rosa DeLauro, (D., Conn.) and Rep. Earl Blumenauer (D., Ore.).

“Massive direct-to-consumer e-commerce platforms and the exponential growth of e-commerce traffic has resulted in a dangerous mismatch,” the Democratic lawmakers said. They said that disqualifying commercial shipments from de minimis treatment is one measure that could help thwart bad actors.

The number of parcels entering that way has ballooned to more than one billion annually by some measures as e-commerce giants with roots in China such as Temu and Shein have experienced meteoric growth.

A House committee report published in 2023 says Shein and Temu alone likely account for nearly a third of de minimis shipments. Temu and Shein have both said they don’t depend on the de minimis provision for their success.

Critics, including members of both parties, claim that de minimis allows importers to potentially circumvent a U.S. crackdown on goods made with China-based forced labor. Critics also allege de minimis provides a conduit for dangerous contraband such as fentanyl to enter the U.S. amid the deluge of packages.

Backers of keeping the status quo on de minimis argue that the provision lets U.S. consumers and businesses source goods more cheaply and with less red tape.

“American consumers, who are united in their concern about rising costs, should take notice that proposals to degrade de minimis are a regressive tax increase, ultimately passed to consumers and small businesses,” said John Pickel, the senior director of international supply chain policy at the National Foreign Trade Council. The business group includes Amazon.com and shippers FedEx and DHL on its board.

Research released this week by the American Action Forum think tank estimated that annual costs to U.S. consumers and taxpayers could go up by between $8 billion and $30 billion if the rule were eliminated.

Despite support from some business interests, a steady drumbeat of lawmakers, including Republican and Democratic China hawks, have called for executive action and legal changes.

Different groups of lawmakers have put forward legislative proposals to change de minimis, but those efforts have stalled, DeLauro said.

One Republican member who has introduced his own de minimis reform bill, Rep. Greg Murphy of North Carolina, said there is bipartisan consensus on passing a strong de minimis bill but disagreement on what it looks like, adding he that is hopeful for progress in Congress.

Blumenauer, who has proposed his own bill on the issue, said he is hopeful Congress will pass legislation, but that the Biden administration should act.

“We shouldn’t roll the dice on what maybe will get through when the administration has the capacity to take action,” Blumenauer said.

Write to Richard Vanderford at Richard.Vanderford@wsj.com