LET’S HAVE A LITTLE EQUITY

There has been a considerable amount of discussion lately about what appears to be a pending trade war with China. In an effort to “protect American business”, President Trump has announced his intention to levy a 25% duty on over 1300 hundred products currently imported from China. China immediately called the bluff and promised a 25% tariff on approximately 100 items American businesses sell to China. Farmers are especially irate about the inclusion of soybeans in the list, as soybeans are the country’s second largest export to China. Midwestern states would be affected significantly if the scenario plays out. The president’s concern is the protection of American businesses from those countries he fells are undermining our industries.

Tariffs have always been controversial because of their retaliatory nature. Every time a country levies a tariff on goods from another country, the aggrieved nation responds in kind. Many economist believe the entire exercise is counterproductive and yields very little positive results. Few would argue that the protection of American industry is not a worthwhile objective; but while we are embroiled in the U.S. – China tariff argument, there is another subsidy that has received little attention until recently. Many manufacturers and consumers have been curious about how a shopper can order a product from Amazon that will ship from China with free delivery or a minimal shipping charge. The answer of course, is subsidy by the post office; but not the Chinese post office. It is our very own USPS that is subsidizing these cheap movements.

President Trump blames Amazon for paying so little postage on domestic shipping to a floundering USPS, but the problem is in our own Washington back yard. In 2011, the post office made an agreement with the postal agencies of China, Hong Kong, South Korea, and Singapore to allow small packages to be sent to the U.S. at very low rates. This option is called the ePacket, and the rates are so low that packages from these countries can move much more cheaply than domestic ones. Wade Shepard, in a recent article for Forbes, cited an example of how the postage on a one pound package from Beijing to New York is $3.66; but shipping it in the reverse direction would cost about $50.00.  (Forget about returning anything.) Moving the package domestically would average about $6.00. But why would the USPS ever make such a deal?

International postage rates are actually set by the United Postal Union (UPU), a U.N. agency established in 1874. One hundred ninety two countries meet every four years to set postage rates. Countries that are considered to be poorer or underdeveloped pay less than those who are not. China, believe it or not, is considered a poor country. If the ePacket rates were abolished, postage rates would revert back to the UPU levels which are even lower.

Finally, just last week, in an effort to provide some equity, a bill was introduced in Congress called the Ending Needless Delivery Subsidies (ENDS) Act. This bill would force the Secretary of State to negotiate the end to all international postage subsidies by 2021. This appears to be a good step toward providing at least some protection to American vendors. There still will be issues of cheaper foreign labor and other resources, but at least we would have a more level shipping playing field. Amazon gets blamed for a lot of disruption, sometimes well deserved, but this one is not on them.

Hopefully, this new bill will move through Congress quickly. Not only would it help American suppliers, but it would make a dent in the continuing, horrific USPS losses.

Written By: Clifford F. Lynch