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Louis DeBroux / September 5, 2018

Time to End USPS Subsidies for Chinese Competition

UN deal forces developed countries to subsidize the shipping costs of companies in developing nations.

The two major thrusts of Donald Trump’s presidential campaign were promises to clamp down on illegal immigration and to renegotiate trade deals in order to end the competitive disadvantages that American companies (and, therefore, American workers) often find themselves combatting in a global market.

On the trade front, President Trump has been busy indeed. Through a variety of negotiating tactics, including threats of retaliatory tariffs, Trump has brought America’s global trading partners back to the table and forced many to submit to fairer trade deals.

In June 2016, Barack Obama mocked Trump at a town hall forum for claiming he would create millions of jobs and bring manufacturing jobs back to the U.S. Obama smugly declared, “Some of those jobs of the past are just not gonna come back! When somebody says … that he’s going to bring all these jobs back, well, how exactly are you going to do that? What are you going to do? There’s no answer to it. … He just says, ‘I’m going to negotiate a better deal.’ Well, how? How exactly are you going to negotiate that? What magic wand do you have? And usually the answer is, he doesn’t have an answer.”

As it turns out, slashing taxes, eliminating regulations, and demanding fair trade results not only in millions of new jobs, but the most manufacturing jobs created in a quarter century. Additionally, Trump has renegotiated NAFTA with Mexico in order to help American companies compete on equal footing. Canada, Germany, and other nations are next on the list.

However, one area that has flown under the radar but should be acted on immediately is the abuse of a little-known United Nations agreement called the Universal Postal Union (UPU), which regulates how much countries can charge consumers for delivery mail originating in foreign countries. In essence, this agreement forces developed countries to subsidize the shipping costs of companies in developing nations.

The problem is that China, with the world’s second-largest economy, is included in that list of “transition” nations, and therefore the American taxpayer is subsidizing shipping costs for Chinese companies that are competing directly with American companies, including Chinese companies making counterfeit versions of American goods.

Of course, if the American consumer gets a defective Chinese product and wants to return, the consumer must pay the full cost of shipping the product back. With the return shipping cost often more than the costs of the actual goods, in practice, Chinese companies get away with selling defective products. The counterfeit-goods trade is a staggering $1.7 trillion dollars annually, larger than the illegal drug trade, so this is a huge and growing problem.

To put this in perspective, under the UPU, in many cases it costs American companies more to ship domestically than it costs Chinese companies like e-commerce behemoth Alibaba, which sells three times more than Amazon, to ship to the U.S. And since the U.S. Postal Service must ship Chinese goods at below cost, American taxpayers and consumers end up covering the losses.

As American small businessman Jayme Smaldone, owner of Mighty Mugs, explains, American consumers are increasingly expecting free shipping for online purchases. That forces his business to either absorb the cost of shipping or lose sales to Chinese companies that get free or deeply subsidized shipping costs due to the UPU. If he absorbs the shipping costs, then that means lower profits, which means layoffs of his employees, fewer jobs for truckers who transport his goods, an inability to invest in R&D or expanding manufacturing, etc.

China has an enormous economic advantage as it is, paying workers a fraction of the wages that American companies pay their workers, leading to significantly lower labor costs for Chinese companies. Additionally, China has virtually no regulations on its manufacturers, while American manufacturers must bear the costs associated with tens of thousands of pages of federal regulations, at a cost of roughly $2 trillion a year. Advantage: China.

President Trump has been working tirelessly to force an end to unfair and inequitable trade practices with America’s trading partners, including efforts to reduce or eliminate tariffs. Regarding the UPU, he has issued a memorandum to Secretary of State Mike Pompeo, Treasury Secretary Steve Mnuchin, and the DHS Secretary, Postmaster General, and Chairman of the Postal Regulatory Commission, calling on them to press for “a system of fair and nondiscriminatory rates for goods that promotes unrestricted and undistorted competition.” Unfair and discriminatory is an understatement for a policy that costs American taxpayers hundreds of millions of dollars each year.

President Trump is right to seek an end to this egregiously unfair trade practice that costs American consumers money and American workers their jobs. If necessary, he should withdraw from the agreement and have the USPS negotiate bilateral deals with the postal services of our trade partners.

Americans deserve better.

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