Where We are, What We’ve Done, and Where We’re Going
In order to understand where we are in the various phases of the evolution of tariffs in America, it well serves our purpose to assess the current situation first. To guide us we borrow a widely employed triptych and remix it slightly: As Americans, with regard to tariffs, let us consider, “Where we are, what we’ve done, and where we’re going.” That is to say we’ve shuffled the tariff timeline into the order of present, past, and future. We’ll begin an analysis of our situation today as citizens of one country in a world of 193 countries (in the United Nations) with uni-, bi-, and multilateral trade relationships.
That’s a lot of trade relationships. So let’s focus on the eight largest trading partners for the U.S. The top U.S. trading partners in goods in 2024 were the E.U., Mexico, Canada, China, Japan, South Korea, Taiwan, and Vietnam. Combining imports and exports, the European Union traded nearly one trillion in U.S. dollars ($1T), Mexico just over $800 Billion, Canada just under $800B, China just under $600B, Japan just over $200B, and South Korea, Taiwan, and Vietnam all under $200B.
Even for this dominant group of eight, that really is a lot of potential trade relationships. Despite the long-standing wave of globalization, regional relationships are still used to group, protect, and encourage trade. The European Union is a prime example of trade and monetary union between independent nations. The U.S., Mexico, and Canada have been grouped under trade agreements starting with NAFTA (North American Free Trade Agreement). This was later replaced by USMCA, the U.S.-Mexico-Canada Agreement. Japan, South Korea, Tawain, and Vietnam can be grouped in a few different ways, often with Japan standing alone with regards to the U.S. And China is certainly worthy of being ungrouped and standing alone.
To describe the trade relationships between nine countries (eight trading partners and the U.S.) we should define some terms. Tariffs, and exemptions from them, come in different forms with different terms applying to them. Three of the most important terms to understand are ad valorem, specific, and de minimis. Tariffs that are specific are calculated as a constant value multiplied by weight. Ad valorem tariffs are based on a percentage of the unit cost. And the de minimis rule is an exemption of duties based on a maximum value.
Specific tariffs based on weight were part of the reason that the infamous Smoot-Hawley tariffs bit so hard in the early 20th century. Ad valorem tariffs are what are mostly used today with the exception of bulk items such as steel and aluminum which are specific. Today ad valorem tariffs are often being placed on the goods from a country, as a whole, as opposed to the more complex way that tariffs were applied in the past, not just on individual goods from a specific country but also on the individual components that made up those goods. In this regard, the production, protection, and taxing of wool in the U.S. 19th century is probably the best case-study of just how complex the specification of tariff schedules can become.
We’ll start with the exemption of duties by the de minimis rule, since it has a significant influence on how electronic components are shipped. Electronic components that are shipped across the world often avoid tariffs by either utilizing the de minimis rule or by using intermediary countries for initial export to avoid tariffs. So it is informative to see what happened when the de minimis loophole was closed.
On April 2nd of 2025, President Donald J. Trump signed an Executive Order, which took effect on May 2nd of 2025, closing a loophole for low-value imports from the People’s Republic of China (PRC) and Hong Kong. The
de minimus rule allows for duty-free imports of goods that are valued at less than $800. How “goods” are defined is fuzzy. A precision resistor valued at ten cents is probably covered by de minimis. Is a spool of 10,000 of those resistors also covered under de minimis? How about a shipping container of 1,000 of those spools?
Once de minimis for China was ended at the beginning of May, China’s exports of low-value packages to the U.S. dropped by more than $1B in the following weeks. Not just coincidentally, the same trade to the
E.U. increased by nearly three quarters of $1B in roughly the same time period. Taxes can certainly form strong incentives or disincentives for trade between countries. Human ingenuity, however, is always there to figure out ways around (or through) those governmental authorities at the ports, often legally, and always considered as to the advantage of those conducting the trade.
What do you think about companies avoiding tariffs? Does that help lower costs for consumers? Should it be allowed in some cases? Let us know at INFO@MICRONCORP.COM. After that, we’ll see you next time on TAXING TARIFFS.