No More $1 Yoga Pants as Trump Aims Trade War at Global Postal Treaty
Trump's latest trade war maneuver will raise prices, but it's more defensible than his tariffs.
The Trump administration's decision to begin withdrawing from a decades-old international postal treaty may look like more economic nationalism.
In some ways, it is. Pulling out of the Universal Postal Union (UPU) means American consumers may no longer have access to deeply discounted Chinese goods—like $1 yoga pants,or thousands of other cheap, Chinese-made goods available through online retailers—shipped into the country at postage rates less than what domestic packages are charged.
This appears to be a calculated move to put actual pressure on Chinese interests exploiting what the White House sees as an unfair international agreement. It is also an attempt to save American taxpayers' money. And it is a practical application of the administration's oft-signaled willingness to favor American industry even at the expense of American consumers.
How you feel about that trade-off probably depends on which camp you identify with the most. But unlike the president's obsession with tariffs—which increase costs for both consumers and American industries that depend on foreign trade, foreign supplies of raw materials, or even domestic supply of materials subject to price increases as foreign supplies are hit with tariffs—withdrawing from the UPU at least contains a discernible logic.
"This is likely a means to gain leverage vis-a-vis the UPU, and the the administration and world have the next 14 months to work out a better deal," says Nick Zaiac, a commercial freedom fellow with the R Street Institute.
But, he adds, "pulling out will have lots of nasty side implications. We'd no longer be bound by world mail standards, potentially increasing costs in the long term. There could be a temporary loss of access to the international mail system if alternatives are not arranged in time."
Originally inked in Switzerland way back in 1874, the UPU attempts to harmonize the postal rules of the 192 member countries. Because every nation has a different postal system, and because every postal system has a different set of rates that it charges for parcels of various sizes and weights shipped over different distances, the UPU provides an alternative to the complicated process of determining the exact fee for every package shipped across international borders. At the end of each year, postal services settle up with one another based on the annual volume and weight of transactions between nations, based on a fee that's written into the treaty.
Those treaty-based fees are the root of the Trump administration's complaint about the UPU. Under the terms of the deal, developing nations—a designation that includes China, despite the fact that it ships more parcels overseas than any other state—are charged a lower rate than richer countries like the U.S. As a result, parcels originating in China can be sent to the United States for significantly lower postage than if those same parcels had originated inside America.
That means U.S. consumers have access to cheaper goods from China, but American manufacturers and retailers (including Amazon, for reasons that should be fairly obvious) dislike the fact that they are effectively undercut on shipping costs by Chinese goods mailed into the country. Interests like the National Association of Manufacturers have applauded the administration for taking the first step towards ditching the "outdated" agreement that the group says is partially responsible for a "flood of counterfeit goods" from China.
"It's another one of those things that Trump can point to as evidence that international rules put U.S. companies at a disadvantage and be, well, correct," says Dan Ikenson, a trade policy expert with the Cato Institute. Ikenson says the decision will create benefits for some U.S. groups and costs for others, but seems like part of the administration's "ongoing inquisition against international agreements and institutions."
Those lower rates for developing countries were added to the treaty in 1969; they were intended to foster development in Asia and Africa by making it easier for businesses in those places to ship goods internationally. U.S. officials point to the multitude of websites offering free shipping from China as an example of how China is taking advantage of international agreements to gain an unfair edge over their American competitors.
Of course, China has come a long way since 1969. There's a good argument to be made that China is no longer in need of the "developing nation" designation now that it boasts the world's second-largest economy. That's exactly the case the Trump administration is making. "They're using our Postal Service and contributing nothing to the overhead, and Americans have to pay for that," Robert Taub, chairman of the Postal Regulatory Commission, tells The Washington Post.
In 2016, the USPS handled over 1 billion pieces of international mail—both inbound (received from other countries) and outbound—but rates for inbound international mail did not fully cover the costs for delivering that mail in the U.S., according to testimony provided by the U.S. Postal Service to the Government Accountability Office (GAO) last year. In 2015, the USPS inspector general found that a 4.4 pound parcel (the heaviest allowed under the UPU treaty) could be shipped from China to the U.S. for just $5, even though it would cost at least twice as much to send the same package from New York to California.
Consumers might appear to "win" by having access to cheaper goods because of the UPU treaty, but only because American taxpayers are subsidizing the whole enterprise by propping up the U.S. Postal Service, which has lost $18.9 billion in the past four years.
The United States leaving the treaty means that "taxpayers and U.S. companies (relative to foreign companies) probably benefit; consumers and import-using manufacturers probably get hurt," says Ikenson, adding that he's not sure whether the U.S. will actually leave the treaty or use the "threat of bailing to negotiate better terms for US exporters."
Compare that to other fronts in Trump's trade war. The White House keep saying that tariffs applied to Chinese imports are a negotiating tactic, but the strategy looks more like an attempt to steal underwear for profit. In other words, there's no clearly articulated plan to move from step one (force American businesses and consumers to pay higher taxes for Chinese-made goods) to step three (get China to agree to various trade concessions), because there's no logical link between the administration's actions and the desired outcome.
There's no way to know whether the Trump administration's plan to withdraw from the UPU will work out in the long run, or whether it will be another barrier to trade that whacks consumers without any commensurate benefits for the American economy. But compared to the carpet bombing tactics used to fight the trade war so far, this looks like a precision strike.