Congressional Hearing on China Illuminates Regulatory Issues, Product Safety Concerns
The explosion of e-commerce has changed consumer purchasing patterns in ways that challenge the federal government’s enforcement efforts, putting shoppers at increased risk of encountering dangerous products.
That’s according to experts who spoke at a hearing held by the U.S.-China Economic and Security Review Commission entitled “Consumer Products from China: Safety, Regulations, and Supply Chains” on Friday.
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James Joholske, director of the Office of Import Surveillance at the U.S. Consumer Product Safety Commission (CPSC), testified that American consumers have shifted from purchasing products from retailers to buying directly from manufacturers located in overseas sourcing locales like China. According to CPSC’s latest comprehensive assessment, nearly 60 percent of the volume of imports that make their way to American shoppers do so through web-based shopping—a trend that is “growing every year,” he said.
“CPSC works closely with U.S. Customs and Border Protection to intercept potentially non-compliant, unsafe imported products,” Joholske said. The agency has investigators stationed at the largest ports of entry in the country, and it has noted some alarming trends.
The agency’s 2021 reporting showed that more than 80 percent of shipments examined had China listed as their country of origin. Thanks to the de minimis trade rule—which allows foreign shipments worth less than $800 to enter the country duty free—Chinese companies can ship cheap goods to shoppers’ doorsteps with very little oversight or intervention.
“CPSC has little ability to act against third-party sellers,” especially small manufacturers based overseas, as they’re tough to track down, Joholske said. “Moreover, most online marketplaces assert that they do not fall under CPSC’s jurisdiction for some or all of their sales,” he added. “They state that for purposes of consumer safety, they are not retailers, manufacturers, distributors or importers.”
Without access to the same data the agency receives for higher-value shipments, CPSC cannot leverage its RAM System—an electronic feed of import entry data compiled by CBP—to identify potentially non-compliant shipments for inspection. “De minimis shipments also often enter the U.S. through express courier and international mail facilities locations where CPSC has very limited coverage,” he added.
“The bottom line is that we have many goods coming from China about which CPSC receives limited data,” Joholske said. “That coupled with the volume of imports and limited staff at major entry point presents significant challenges to CPSC and our ability to stop dangerous products before they enter the stream of commerce.”
The problem is only getting worse, according to Dan Harris, a partner at Harris-Sliwoski, LLP. “Since around 2017, I’ve observed a decline in Chinese product quality and safety,” the lawyer testified. “I base this assertion mostly on the number of companies that have sought help from my law firm after having received such products, and on the number of plaintiffs lawyers who have sought our law firms help in pursuing Chinese manufacturers on behalf of their injured clients.”
Harris said that prior to 2017, he would have characterized China’s product safety as being on an upward trajectory, but since then, it has been falling precipitously. “Chinese companies are in financial trouble” due to reverberations from the Covid lockdowns and the decline of the country’s economy, which has led to reduced demand from Chinese products, he said. In an effort to reduce costs, these suppliers are cutting corners by using lower quality components that could result in dangerous or defective products.
“The second cause for the decline in product safety is that Chinese manufacturers see less value in maintaining long term relationships with the American companies that buy their products,” Harris added. “And this is because they believe these companies are looking to leave China and they’re probably right. I’ve had Chinese manufacturers tell me that with China’s economy declining and American companies seeking China alternatives we should expect the problem of unsafe Chinese products to worsen.”
Because U.S. shoppers typically can’t sue or collect damages from obscure Chinese manufacturers, even the most “consistently negligent” operators can continue to make faulty goods, from explosive electronics to apparel made with toxic chemicals. “Chinese manufacturers lack any real incentive to improve product safety because they can continue operating and producing unsafe products,” he said.
Meanwhile, Chinese producers are insured against non-payment risks by their own government. Sinosure is a state-run provider of export credit insurance for China-based suppliers. “I have been involved with close to 100 Sinosure matters,” Harris said. “I almost always deal with Sinosure after it has sent a threatening letter to an American company that has failed to pay one or more of its Chinese manufacturers. About 70 percent of the time, the American company failed to pay… because the product it received was a poor quality or defective.”
According to Harris, U.S. firms that refuse to pay for defective goods are barred from purchasing from any China-based supplier on credit, effectively cutting off access to the country’s supply chain. Meanwhile, the manufacturer in question is usually made whole by the insurance scheme.
“Why should a Chinese company worry about product safety, if it can get paid in full no matter how bad its products are, especially when it is it is at little to no risk of getting sued?” Harris said.
Meanwhile, Elizabeth Drake, a partner at Schagrin Associates, LLP, said that China-made goods could also be making their way into the country through a backdoor, effectively dismantling the U.S. government’s efforts to reduce reliance on China.
“In 2023, for the first time in over 20 years, China fell to our third largest source of imports behind Mexico and Canada, rather than our first largest source since Section 301 duties were imposed on China in 2018,” Drake said. “Our imports from China have fallen by more than 20 percent, while our exports to China have risen, shrinking our bilateral trade deficit by nearly one-third.”
“During the same period, however, our imports from other countries rose and our overall trade deficit continued to increase,” she explained.
This may represent a “cause for concern,” as these shifts in trade following the implementation of punitive tariffs “may indicate that the duties are being circumvented or evaded,” for example, through the growing use of de minimis. “They may also suggest that unfair Chinese trade practices are continuing to distort the U.S. market through investments in exports from third countries.”
Drake said it is “vital” that the U.S. ensure that any shifts in trade resulting from the Section 301 duties aren’t actually undermining American supply chain resiliency. Chinese subsidies and investment are likely funding the growth of other sourcing markets across the globe, introducing new means for China-made goods, or products made with Xinjiang cotton, to enter the U.S. market.
“Chinese producers continue to grow market share by investing in alternative manufacturing hubs including Mexico and Vietnam, and while data may indicate these countries are taking market share from China, further examination notes how Chinese manufacturers are key suppliers of component parts to these countries, further solidifying China’s dominance in supply chains,” the hearing’s co-chair, National Council of Textile Organizations (NCTO) president and CEO Kim Glas, said. “The trade data can’t mask the influence China continues to have on the world stage directly and indirectly through other markets.”
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