“Made in China” are the three words you can find on almost any product you can buy
today.
In the span of only twenty years, the Chinese share of global manufacturing has increased
by a factor of ten and a big part of what made that possible is e-commerce.
Sites like Amazon and eBay made billions of dollars by connecting Chinese factories with
American customers and this connection is part of the reason why the US had a record-breaking
trade deficit with China last year, a statistic that Donald Trump is aggressively trying to
change.
But one of the key players behind the rise of Chinese manufacturing is an all-too-familiar
face.
In today’s episode, we’ll see how the USPS helped make China great again.
By the way, when you’re done watching this video head on over to Cheddar’s channel
to learn why the USPS is the delivery service of choice for online drug dealers.
At the heart of the Chinese e-commerce boom is a very simple calculation.
It is going to cost you less money to send a small package from China to an American
city than it’s going to cost you to send the very same package within the continental
US.
Here’s how that happens: let’s say a Chinese merchant sends a one-pound package from China
to the US.
China Post handles moving that package across the Pacific, and because of their low labor
cost, government subsidies and exceptional aggregate capacity the Chinese merchant pays
almost nothing to cover this huge distance in less than two weeks.
The international part of the journey costs so little, that the Chinese merchant can include
the shipping cost in his price and say his product has “free shipping”, which of
course it doesn’t because there’s no such thing as a free lunch, but the final price
is still so cheap in the eyes of Americans that it does look like free shipping.
But the magic part is what happens to the Chinese package once it reaches the US.
The USPS handles the final leg of the journey, delivering the Chinese package from the US
port-of-entry to its final destination, and for this service it charges China Post a fee
known as a “terminal due”.
The fee that China Post pays to the USPS is almost always less than what it would cost
an American citizen to send the same package internally.
In fact, the USPS charges so little that it actually loses money by doing the delivery.
On average the USPS loses about a dollar and ten cents on every Chinese package, but the
worst part is the USPS can’t really do anything about it.
You see, almost all national carriers in the world, including the USPS, are part of the
Universal Postal Union, which basically determines the terminal dues between countries.
The UPU is part of the United Nations, but it’s actually one of the oldest international
organizations in existence and was only later absorbed into the UN.
As befitting of any bureaucratic institution, the UPU reacts very slowly to changes in how
the world works, and they totally failed to react to the rise of e-commerce.
Officially, the UPU considers China as a developing country, granting it the same low terminal
dues it gives to countries like Jamaica or Serbia.
The result is a staggering series of losses that make the USPS the worst-performing national
carrier in the entire world.
Of course, because the USPS is a federal agency eventually all of these losses are going to
be paid for with taxpayer money.
As of 2017 the USPS is down a collective $60 billion.
Now, it’s worth mentioning here that a big chunk of this debt is due to prepaid retirement
benefits, which is a totally separate can of worms that deserves its own video.
But even if we discount the healthcare mess made by Congress, the USPS still has $20 billion
more in liabilities than assets and the Chinese e-commerce boom is increasing that number
every year.
In fact, very recently the US government put another nail in the USPS coffin by raising
what is known as the “de minimis” value on US imports.
This number essentially tells you the maximum shipment value you can send to the US without
being subject to import duties, which are annoying to file and usually very expensive.
Up until recently that number was $200, but then in 2016 president Obama signed the Trade
Facilitation and Trade Enforcement Act, which made sweeping changes to a lot of trade regulations,
but also raised the minimum exemption from $200 to $800.
For comparison the minimum values in France and Germany are 150 euro, while in the UK
it’s 135 pounds.
The bad news is that the situation isn’t likely to improve anytime soon.
The USPS has its hands tied by the UPU, which moves at a glacial pace.
The organization meets once every four years to set future rates and the last time they
met was in 2016, where they decided on the rates to be used from 2018 to 2021.
The actual problem is that national governments don’t really pay attention to the UPU and
representation is usually left to loosely supervised political panels that have other
problems to solve.
Even Donald Trump hasn’t blamed the UPU itself; instead he’s going for the much
more visible questions, like international tariffs or the rates Amazon and private carriers
are getting from the USPS.
And if you’re thinking that’s the full list of the USPS’s problems, well then you’d
probably be surprised to learn that the USPS is in fact the carrier of choice for online
drug dealers.
It turns out some of the biggest sellers out there are based out of China and take advantage
of the UPU’s inaction.
But if you want to learn why these sellers are audacious enough to send their illicit
shipments through the USPS, well head on over to Cheddar’s channel to watch their awesome
video on exactly this problem.
Cheddar’s channel covers business and technology in fun bite-sized videos that leave you craving
for more so check out their channel, it’s really interesting and consider subscribing
to keep up with their new videos.
Anyhow, thank you for watching.
If you enjoyed my video I’d love it if you throw in a like and maybe even subscribe.
You can also check out my Patreon page, where you can get awesome perks like early access
to my future videos and HD versions of all the soundtracks I use.
You can expect to see my next video two weeks from now, and until then: stay smart.