A decade ago, American consumers could find clothes, toys, and appliances that had been manufactured in China stocked on the shelves of major retailers like Wal-Mart and Target. And even if they shopped for some of those goods online, the shipments typically came from stock that was held by warehouses in the United States.

But these days, with American consumers doing more of their shopping online, a growing share of what they buy is coming directly from factories and small businesses that have set up shop on e-commerce platforms like Amazon. These are often individuals shipping goods directly from China, aided partly by the extremely low prices charged by the U.S. Postal Service.

“You can be an entrepreneur in China sending 10 packages a day into the U.S. market on various platforms. And then all of a sudden, you’re doing 2,000 a day, and then 10,000 a day,” says Doug Caldwell, a postal consultant who for seven years worked as a logistics executive in China.

The development has reshaped global commerce, enabling small entrepreneurs in China to compete with America’s big box retailers. By cutting out distributors and middlemen, the direct-from-China surge has lowered the price of many ordinary household items while also opening the door for the U.S. market to be flooded with counterfeits and even highly addictive synthetic opioids like fentanyl, much of which has been shipped from China using small packages sent through the postal service.

While the key driver of this shift has been the rise of Amazon and the emergence of sophisticated logistics networks, experts say it was also aided by an international postal agreement that up until recently kept the cost of shipping small packages from China to the U.S. artificially low. As a result, the U.S. government, through its postal service, has for years been subsidizing the cost of sending small packages from China.

“Volumes [of e-commerce packages] from China to the U.S. have been growing quite feverishly over the past decade,” says Mark Schoeman, chief executive of The Colography Group, a logistics market research consultancy. 

To get a sense of the scale of the direct-from-China boom consider this: in 2019, the U.S. Postal Service processed and delivered roughly 270 million small parcels brought to the U.S. by China Post, the country’s state-run postal service, up from about 45 million in 2014, according to expert analysis of data from the federal postal regulator.¹The U.S. Postal Service considers information about postal volumes and rates to be commercially sensitive and only discloses aggregated data, so experts can only roughly estimate volumes from China. Data from the Postal Regulatory Commission, the federal body that oversees the postal service, only includes shipments received under international mailing agreements. Some shipments, including some tracked packages from China, are sent under bilateral agreements and data about them are not disclosed by the U.S. Postal Service. And last year, approximately half of all small packages that the U.S. Postal Service received from overseas originated from one nation: China.

What helped make it affordable for Chinese businesses to ship small packages directly to American doorsteps was the favorable cost of shipping to the U.S. through China Post. And that is linked back to an international agreement.

The U.S. and China are members of the Universal Postal Union, a United Nations agency that sets guidelines for international mail. And under UPU rules, less developed countries typically pay less to the postal services of wealthier nations. As a result, China Post often paid the U.S. Postal Service less than it costs to deliver a package. (This also allowed China Post to charge below-market rates for shipping goods to the U.S.)²Some e-commerce packages were shipped under rates set by a bilateral agreement between the U.S. and China, but analysts say these were tied to the UPU’s artificially low rates. The lower rates were generally for lightweight packages, which make up the vast majority of e-commerce shipments, but price breakdowns for heavier packages could be closer to the rate required for USPS to break even.

Those rules didn’t matter much when the number of U.S. packages originating in China was small. But today, China ships about as many small packages to the U.S. than nearly the rest of the world combined, everything from stationary to jewelry to political paraphernalia. Even orders placed on Amazon can be routed to small businesses inside China that package the goods, drop them off at China Post, and pay a small fee to have them shipped 6,000 to 8,000 miles away.

Analysts say the U.S. taxpayer was, in effect, subsidizing China’s e-commerce networks, and racking up hundreds of millions of dollars in losses — a huge sum for a federally-backed agency that has been operating in the red for much of the past decade, with billions of dollars in losses.

In 2017, for instance, the U.S. Postal Service was, on average, being hit with an approximately 65-cent loss for each small package arriving from China Post, according to data from the U.S. postal regulator. And experts say this didn’t just affect taxpayers, who foot the bill for the U.S. Postal Service.

The “delivery of inexpensive e-commerce goods is a fairly significant part of the price. That gave foreign merchants a fairly big advantage over U.S. merchants,” says James Campbell, a Washington-based lawyer and UPU expert.

Some analysts say e-commerce platforms like Amazon understood this and pushed to expand their base of suppliers in China, giving vendors there in China the ability to sell cheaply to Americans. “Amazon is interested in expanding its business in China. They want Chinese sellers to have access to the U.S. Amazon.com market,” says Chris McCabe, a consultant for Amazon sellers. Lower prices on the platform, he adds, translates to more business for Amazon.

Today, in fact, Chinese sellers dominate Amazon’s U.S. e-commerce platform. According to Marketplace Pulse, an e-commerce consultancy, nearly 60 percent of the top 100,000 sellers on the U.S. platform are based in China. (Amazon, which did not respond to a request for comment, has previously disputed the study’s methodology.) And while some Chinese sellers on Amazon and other e-commerce platforms ship their goods in bulk as commercial imports to local distributors who fulfill orders, others ship directly from China to private homes.

The ease of sending lightweight packages from China to the United States was brought to light this summer when thousands of Americans received unordered packages of mysterious seeds sent from China. Many believed the packages, which alarmed agriculture authorities, were part of a “brushing” technique through which sellers on Amazon send goods to random addresses in order to record shipments and leave themselves positive reviews. 

The cost of postage was apparently not an impediment.

But mystery seeds aren’t the only concerning items coming in the mail from China. Fentanyl, the incredibly potent synthetic opioid, as well as counterfeit goods, have flooded the U.S. market as Chinese shipments to the United States soared. Despite efforts to stem the flow, ensuring nothing illicit comes in the millions of packages that arrive daily at U.S. points of entry is a quixotic task. Congress in 2016 quadrupled the threshold under which duties are waived to $800, in part to facilitate cross-border commerce. The vast majority of e-commerce products are under $800, and thus would not require assessment for duties by Customs and Border Protection.

The agency did not respond to a request for comment.

But in 2018, with the U.S. Postal Service racking up losses, the Trump administration threatened to withdraw the United States from the UPU if the body didn’t let it charge foreign post offices rates that covered the costs borne by the U.S. Postal Service. Peter Navarro, Trump’s hawkish China advisor, penned a strongly worded op-ed arguing the system benefited Chinese sellers and harmed Americans. After contentious negotiations, the UPU changed its rules and the United States agreed to remain in the body. The United States then began implementing new “self-declared” rates this July, charging foreign post offices, including China Post, rates that roughly cover its costs.

It was naïve to think this was suddenly going to stymie stuff coming from China and we’re going to open up factories here.

Kate Muth, the executive director of the International Mailers Advisory Group

After the UPU vote, Gao Hongtao, deputy director of China’s State Post Bureau, said the previous agreement had been a key factor in the meteoric rise of China’s international e-commerce. But the agreement could have been worse for China, she noted, adding that more expensive rates for China Post would help spur the internationalization of China’s private express services.

Experts are struggling to understand the impact of the new rates on e-commerce from China because Covid-19 has caused chaos in the logistics market. But while they acknowledge it will give American sellers a more level playing field, few think it will be a real boon for American businesses.

“It was naïve to think this was suddenly going to stymie stuff coming from China and we’re going to open up factories here,” says Kate Muth, the executive director of the International Mailers Advisory Group, a trade organization that represents shipping consolidators and groups like Amazon, eBay and the U.S. Postal Service. “It was more about getting rid of the distortions; it was just one piece,” she adds.

But the mechanics of e-commerce are more likely to change. Unless China Post decides to subsidize shipments, higher USPS rates will be passed on to Chinese companies or U.S. customers, so shippers may look for lower cost ways to get their goods to Americans. 

Analysts say shippers with higher volumes may move from sending individual packages to U.S. consumers through China Post to using third party logistics companies. More goods will be sent by ocean freight and imported as commercial goods, and they will be brought to private warehouses or local U.S. Postal Service offices for last-mile distribution, not injected into the mail stream at the port of entry.

The pricing change could mean longer waits and higher prices for small goods sourced from China. But few think it will erode China’s dominance of e-commerce. “Does having to pay a fair price for shipping or clean up counterfeits or be compliant with duties and tariffs put Chinese companies out of business? No,” says Shoshana Grove, chief executive of International Bridge, a logistics company that specializes in China-U.S. e-commerce. “But they may need to recalibrate their business and do things in a different way in order to be as profitable.”

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