Trump can move unilaterally to stop US subsidies for Chinese shipping
Decades ago, the U.S. entered into a global agreement created by the Universal Postal Union, a U.N. agency that sets postal rates for delivering letters and packages around the world.
Its terms are easy enough to understand in their basic structure. If a person or company sends a letter or package from Norway to the United States, the Norwegian Postal service will handle the leg from Norway to the United States, with the U.S. postal service taking responsibility for shipping it to its final destination. The UPU sets the rates for both legs of the shipment.
The problem is that the general underpricing of those rates set by the UPU, called terminal dues, has generated hundreds of millions in losses for an already financially pressured U.S. Postal service. These losses are growing rapidly. This is particularly true of discounted rates for China, which have allowed that country to take advantage of American taxpayers for years.
The UPU agreement ties the rates that each country pays to its place on the global economic spectrum; the less-developed the country, the lower the postal rate.
But China, the second largest and one of the most sophisticated economies in the world, is classified in the same tier as Gabon, Botswana, and Cuba. This outdated classification means the U.S. is effectively subsidizing every package China sends our way.
China is exploiting this system to devastating effect. Under the UPU agreement, Chinese senders can mail any package to the U.S. and the Post Office will deliver it for less than $1.50. Meanwhile, U.S. competitors must pay the Postal Service a multiple of that in order to have the same package delivered to the same place.
These days, consumers are not only product price-point sensitive, they are increasingly delivery-price sensitive. On a product such as a $6 phone charger, no consumer will tolerate an additional 100% price increase for shipping when they can buy the same product from China and have it shipped for free (the government of China or the Chinese company will usually eat the underpriced U.S. postal charge). This is a devastating handicap for American e-commerce and retail businesses to bear. These postal subsidies are putting our companies, particularly our small businesses, at an immense disadvantage against the Chinese, constricting U.S. job and economic growth.
In addition to the massive shipping encumbrance we have placed on U.S. businesses, this has turbocharged the losses of the USPS, since the prices under the UPU agreement are well below the real cost of shipping. These losses, absorbed by the USPS and consequently the American taxpayer, currently stand at hundreds of millions annually and are projected to grow to billions over the coming years as e-commerce continues its extraordinary growth.
And Chinese counterfeit products take advantage of the same U.S. shipping subsidy. This victimizes American businesses twice, who pay to ship products that violate their intellectual property rights. The counterfeit goods industry, as a $1.7 trillion market, is costing millions of jobs and is devastating to the U.S. retail market.
A new e-commerce phenomenon called dropshipping is behaving as an accelerant for these negative trends, allowing growing numbers of middlemen to take advantage of the UPU rates. Without ever touching the product, dropshipping middlemen list and resell products from an e-commerce site, at which point the e-commerce site simply ships that product directly to the buyer from China, using the built-in shipping subsidy. This has occurred most notably with the Chinese e-commerce behemoth Ali Baba’s Ali Express. The number of middlemen now exploiting the UPU system is exponentially aggravating America’s postal and e-commerce problems.
The bottom line is that we are subsidizing the demise of our e-commerce industry at a time when this industry is an increasingly important global economic force. Luckily, this agreement could be renegotiated by executive order, bypassing cumbersome and special-interest laden congressional approval. In one fell swoop, President Trump could change this outdated and faulty agreement, putting our U.S. retail businesses on an even footing with our Chinese competitors.
Ami Horowitz is an American documentary filmmaker. He is the writer, producer, and director of “Ami on the Streets,” a satirical short film series. Horowitz co-wrote, co-directed, and starred in the 2009 documentary “U.N. Me,” a critical examination of the United Nations.
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