The Economist - USA (2022-02-26)

TheEconomistFebruary26th 2022 Finance&economics 69

whereas those trying to get around Ameri­
ca’s  tariffs  will  only  have  become  more
adept at doing so.
What are the tricks of the trade? One ap­
proach  is  to  exploit  what  is  known  as  the
“de minimis” rule. According to this, coun­
tries  neither  charge  duties  on  nor  collect
full data on imports below a certain value.
Most  developed  countries  set  the  thresh­
old at around $200. In 2016, eager to focus
scarce  customs  resources  on  high­value
shipments, America lifted its bar to $800,
providing  importers  with  ample  scope  to
avoid  tariffs.  Over  the  12  months  to  Sep­
tember  2021,  American  customs  officials
counted  that  771.5m  de minimispackages
entered  the  country—a  fifth  more  than
during  the  previous  period—with  no  esti­
mate  of  their  actual  value.  Some  logistics
companiesnow offer services to American
importers,  letting  them  make  bulk  ship­
ments to Mexico or Canada and then break
them  into  smaller  packages  for  tariff­free
entry into America.
Some firms may also be evading tariffs
by  presenting  false  information  to  cus­
toms  inspectors.  In  their  paper,  Mr  Clark
and Ms Wong noted that American import­
ers  could  use  “low­ball  invoices  supplied
by their Chinese suppliers”. There also ap­
pears  to  have  been  an  increase  in  goods
produced  in  China  but  falsely  labelled  as
originating  from  other  countries.  Since
2016 the Customs and Border Protection, a
federal  agency,  has  published  a  record  of
its  investigations  into  potential  evasions
of anti­dumping duties. Over the past two
years  it  has  launched  37  such  investiga­
tions,  up  from  24  over  the  previous  three
years.  Virtually  all  have  targeted  products
from  China.  In  January,  for  example,  cus­
toms investigators determined that Simpli
Home, a furniture company, had imported
quartz products from China but incorrect­
ly claimed they were from Vietnam. In De­
cember they found that a&aPharmachem,
a  supplier  of  drug  ingredients,  had  trans­
shipped  China­produced  xanthan  gum
through India to avoid tariffs.
With tighter rules and closer checks at

theborder,America couldstop someof

thistariffavoidance.EarlBlumenauer, a

DemocraticcongressmanfromOregon,in­

troduceda billlastmonth—aimedsquare­

ly atChina—thatwouldpreventcompa­

niesfromnon­marketeconomiesfromus­

ing thede minimisloophole.If customs

agentsweretoopenmoreshippingcon­

tainers andsift through them carefully,

theymightidentifymoreunderstatedin­

voicesandmoremislabelledcountriesof

origin.Butdoingsowouldrequireexper­

tiseandtime—allthemoredifficultwhen

portsaresufferingfrombacklogs.Officials

want to speed shipments up, not slow

themdownwithyetmoreinspections.

Indeed,Americacanbeatleastsome­

whatgratefulforallofthetariffavoidance.

Dutiesattheborderultimatelyactasa tax

onAmericanconsumers,pushinguppric­

esforimportedproducts.Ata timewhen

inflationis runninghigh,tariff­dodging

helpstokeepcostsdown. n

Hole in the wall

China, exports to the United States, $bn

By source of data

Sources:GACC;USCensus Bureau; The Economist

*USimportsassumingconstant historical

relationshipwithChinese data

700

600

500

400

300

200

2120181614122010

Adjusted*

China

UnitedStates

Taris implemented

TheIMF’swoes

Lost and fund

I

n the once-bustling streets  around

the  imf’sheadquarters  in  Washington,

dc, you can hardly spot a soul these days.

Soul­searching is also keeping officials bu­

sy  inside  the  building.  With  government

debt ballooning everywhere, many contin­

ue  to  criss­cross  the  globe,  talking  with

countries that can still borrow and coaxing

creditors into granting relief to those who

cannot. But the world’s lender of last resort

is hampered by conflict between its mem­

bers—just as rising interest rates threaten

to cause a big bang of defaults.

Two  years  of  pandemic­fighting  and

on­off  lockdowns  have  turbocharged  glo­

bal  debt,  both  public  and  private.  In  2020

alone it soared by 28 percentage points, to

256%  of  gdp—the  largest  one­year  rise  in

borrowing  since  the  second  world  war.  In

recent  months,  as  central  banks  have

raised  interest  rates  to  combat  inflation,

the cost of servicing it has increased, rais­

ing  demand  for  the  fund’s  assistance.  In

most  large  emerging  markets  the  pain  is

manageable, for now. Soaring inflation and

sinking currencies have not yet pushed the

likes of Brazil or India towards crisis. 

Instead  a  quieter  crisis  is  breaking  out

in smaller countries devoid of hard curren­

cy. Sri Lanka, Tunisia, Lebanon and Ghana

are  all  candidates  for  loan  programmes

from  the  imf.  On  February  23rd  the  fund

said it would start talks with Ukraine over a

possible$700mdebttranche.Amongthe

world’s 60­odd poorest countries, more

thanhalfcarrydebtloadswhichmayneed

toberestructured.Thatmaybeanunder­

estimate:a recentWorldBankreportfound

that40%oflow­income countries have

notpublishedanydataabouttheirsover­

eigndebtsince2020.

Theimfhasenoughfirepowertohelp

solventcountries.Itsresourceswerein­

creased after theglobal financial crisis,

boostingitslendingcapacityto$1trnto­

day,upfrom$400bnin2010.It hasalsore­

spondedcreatively tomembers’difficul­

tiessincethestartofthepandemic.When

markets melted down in early 2020, it

launched a short­term liquidity facility

through which countries facing cash

squeezescouldborrowcheaply.Italsolent

$170bnthroughrapidcreditfacilitiessimi­

lartoitsstandardloanprogrammes,but

withfewerstringsattached.

LastAugustitalsodoledout$650bn­

worth of new special drawing rights

(sdrs),a quasi­currencyusedtoaugment

countries’ foreign­exchange reserves, to

allitsmembers.Becausesdrs areallocated

basedonwhateachmembercontributesto

thefund, mostofthe issuancewent to

well­offcountries.Just$21bnwasallotted

tothosethatreallyneededit.Butthefund

isworkingtocreatea trustthroughwhich

someofthesdrs allocatedtorichermem­

bersmightbeavailableforlong­termlend­

ingtopoorerones.Thoughtheg 20 prom­

isedlastyeartoponyup$100bnforthe

trust,only$60bnhasbeenpledgedsofar.

Suchprogrammeshavehelpedtotide

overmanysolventcountrieswhenmar­

ketshavedriedup.Butlending,nomatter

howeasyorcheap,isoflittlehelptocoun­

triesthatarenearlybankrupt.Atleasta

dozencountriestodayowemorethanthey

canhopetorepay.Giventhefragileoutlook

forgrowth—cloudedbytightermonetary

policy,a weakChineseeconomyandgeo­

political tensions—more may join their

ranks.Withoutdebtrelief,manywillonly

use imf loans to repay other creditors,

WASHINGTON, DC

Despite bulging debt across the planet,

the imfis struggling to be helpful

Gaining leverage

Public external debt of low-income countries, $bn

By creditor origin

Source:WorldBank

200

150

100

50

0

201816141210082006

Other

bilateral

China

Paris Club