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Clark Packard

In early February, the ever-protectionist Trump administration announced it would immediately eliminate the “de minimis exemption” for low-value shipments arriving from China, effectively raising taxes on American consumers and dramatically increasing shipping times. Within days, US ports of entry were overwhelmed with a backlog of packages. Realizing Customs and Border Protection (CBP) was unprepared to deal with the deluge of packages, the administration quickly backed off and instead announced it would create a process for eventually eliminating the exemption for China. Likewise, policymakers in Congress seem intent on eliminating the exemption. Such moves have serious implications for average Americans.

Background

The United States provides three customs processes by which foreign goods can arrive in the country: formal entry, informal entry, and de minimis exemption.

Formal entry applies to shipments valued above $2,500 and requires comprehensive documentation and oversight (think container ships arriving in US ports). Importers must file customs paperwork summarizing the shipment and its contents, including its valuation and country of origin. A customs surety bond must be posted to guarantee payment of duties and compliance with regulations. The process requires using a licensed customs broker to prepare and submit documentation, and importers pay an ad valorem merchandise processing fee of about 0.35 percent of the shipment value. Formal entries require proper classification using Harmonized Tariff Schedule codes, and detailed commercial documentation, and may face intensive customs examination.

Informal entry provides a simplified process for shipments valued between $801 and $2,500. While still requiring a summary of the contents and payment of applicable duties, the documentation requirements are less stringent. Instead of an ad valorem fee, informal entries pay a fixed merchandise processing fee ranging from $2.22 to $9.99 per shipment. A customs broker is still required, with an average fee of around $23, but no surety bond is needed. While these shipments remain subject to customs review, the process is typically faster and less intensive than formal entry.

Finally, US law allows low-value shipments to bypass this process altogether. For nearly 90 years, Section 321 of the Tariff Act of 1930 (known as the de minimis exemption), as amended, has allowed customs officials to waive import duties and customs paperwork—and bypass a customs broker—for low-value foreign packages entering the United States. A former assistant Treasury Secretary once told a congressional committee that the goal of the de minimis exemption was to ensure customs officials were not “spending a dollar to collect fifty cents.” Since 2016, the de minimis exemption law allows American businesses or individuals to buy up to $800 worth of goods each day duty-free.

The original Tariff Act of 1930 (the infamous Smoot-Hawley tariffs) did not provide any type of de minimis exemption but local customs officials routinely chose not to inspect certain foreign packages to avoid wasting resources. In 1938, at the behest of the Roosevelt administration, Congress amended the Tariff Act of 1930 to establish a formal exemption from customs processes and duties for foreign packages valued at $1 or less sent to American buyers, which is where the threshold remained until 1978. In 1978, Congress raised the de minimis exemption threshold to $5. As part of the legislation implementing the North American Free Trade Agreement in 1993, Congress raised the de minimis threshold to $200 and then raised it again in 2016 to $800, the current threshold. Items such as alcohol, perfume, cigarettes, and those goods subject to antidumping and countervailing duties cannot be shipped using the de minimis exemption.

So what was the impetus for the 2016 increase? When an American returns from a trip abroad, he or she can bring up to $800 worth of goods into the country without filling out customs paperwork and paying duties on the product. Imagine the headache at airports if returning Americans had to fill out customs paperwork and pay tariffs for each trinket, souvenir, or item of clothing brought back to the United States from a foreign trip. Yet such treatment has not historically been granted to foreign goods shipped to American buyers. In 2016, Congress sought to equalize this treatment and allow all Americans to receive the same treatment that those wealthy enough to travel abroad receive upon returning home.

According to 2024 congressional testimony from a CBP official, the average value of a de minimis shipment during Fiscal Year 2023 was $54. In 2018, China was the country of origin for about 75 percent of all de minimis shipments; in 2023, China accounted for about 60 percent.

As Figure 1 below demonstrates, use of the de minimis exemption has increased dramatically in recent years. In 2013, for example, a little more than 100 million foreign packages were sent to American businesses and individuals under the de minimis exemption, and in 2016, the first year under the new $800 threshold, 255 million packages were sent using the exemption. CBP recently announced that it processed more than 1.3 billion de minimis shipments in 2024 or more than 3.8 million packages per day.

What is driving this explosion? Perhaps Congress raising the threshold to $800 in 2016 (from $200) played a part. From small, one-person operations to major corporations, direct-to-consumer e‑commerce business models have rapidly developed in recent years. Consumer goods giants Temu and Shein, platforms connecting foreign producers to buyers in the US and around the world, have seen a major export boom in recent years. But the average de minimis shipment value ($54) is significantly lower than the $800 threshold, and given that Temu and Shein sell very low-priced items, there’s a strong implication that something else the major driver of the explosion in de minimis shipments. 

The dramatic expansion of de minimis shipping can be directly traced to the 2018 US-China trade war. As Reuters recently detailed, when the United States imposed aggressive tariffs on Chinese imports—most of which remain in place today—it fundamentally altered shipping patterns. Prior to the tariffs, Chinese suppliers typically shipped low-cost consumer goods like clothing and accessories in bulk through traditional customs channels. However, the new duties prompted both Chinese exporters and US importers to restructure their operations around direct-to-consumer shipping to take advantage of the de minimis exemption. The impact was dramatic: de minimis imports grew from just 0.7 percent of U.S. consumer goods imports and 1 percent of e‑commerce sales before the trade war to over 7 percent and 5 percent respectively by 2023. 

Rather than reducing Chinese imports as intended, the tariffs largely redirected trade flows from traditional bulk shipping to individual package delivery through the de minimis channel. The famous trade economist Anne O. Krueger explained this dynamic in a Project Syndicate column last fall: “In warehouses in Northern Mexico, goods imported from China are repackaged into smaller parcels, each valued at less than $800, allowing them to enter the US tariff-free under the de minimis rule—a practice known as the ‘Tijuana two-step.’”

However, it is not just the United States experiencing a massive surge in low-value shipments. In 2023, more than 2.3 billion packages were sent throughout the European Union under its €150 exemption threshold—more than double the volume in 2022. Now the EU is considering revoking its exemption.

Economics

Eliminating de minimis shipments entirely—or only for China— would have far-reaching negative effects for Americans, particularly poorer consumers. A 2024 National Bureau of Economic Research paper by Pablo Fajgelbaum and Amit Khandelwal found that lower-income consumers are more likely to purchase de minimis imports, particularly from China. The authors also find that “73 percent of direct shipments imported by the poorest zip codes are de minimis compared to 52 percent for the richest zip codes.” China is the country of origin for 48 percent of de minimis shipments to the poorest zip codes compared to 22 percent for the richest zip codes. Eliminating de minimis entirely, the authors find, would increase average tariffs faced by the poorest zip codes to nearly 12 percent versus 6.5 percent for the richest zip codes. On top of the tariffs, the per-package administrative fee would increase to over $23. Add to that a customs brokerage fee, which estimates show can range from about $8.50 to $30 per parcel depending on a number of factors, and the fees could easily cost more than the product itself.

In aggregate, Fajgelbaum and Khandewal found that eliminating the exemption would reduce consumer welfare by between about $11 billion to $13 billion annually, or about $35-$80 per person depending on the data source utilized.

Likewise, eliminating de minimis would disrupt direct-to-consumer international trade sales. It would force costly restructuring of supply chains, reduced competition, and consumer choices.

Administrative Nightmare

Eliminating the exemption entirely or even for just China and Hong Kong would also be an administrative nightmare. Requiring an informal customs entry process—with an entry summary, a fixed merchandise fee, and utilizing a customs broker—for the approximately 1.3 billion packages arriving in the United States would overwhelm CBP resources and create large inefficiencies. In early February, the Trump administration temporarily paused de minimis shipments from China and Hong Kong. After just a few days, more than a million packages were piled up at New York’s JFK airport alone, according to Reuters.

Using the agency’s Workload Staffing Model which it reported to Congress in 2023, Oxford Economics estimates that CBP is already nearly 5,000 officers short. It is likewise estimated that eliminating the de minimis exemption entirely would necessitate hiring and training an additional 22,000 CBP officers. The additional paperwork burden would be immense—not to mention the additional wait times for consumers.

Likewise, eliminating the exemption for China will create stronger incentives to mislabel packages and route even more Chinese-origin goods through warehouses in Mexico—the “Tijuana Two-Step” that Anne O. Kreuger described. 

Privacy Concerns

On top of the economic costs and administrative headaches, eliminating de minimis shipments would be a significant expansion of government surveillance into private commercial activities. Buyers and sellers would have to disclose detailed customs documentation for every small dollar international shipment, forcing individuals to provide significantly more personal information to government databases. Indeed, requiring more detailed information requirements for all shipments would create vast repositories of data about Americans’ purchasing habits and other personal consumer choices.

Fentanyl

Critics of the de minimis exemption contend that it helps facilitate the abuse of fentanyl in the United States and eliminating the exemption could stem deadly drug use. Yet there’s reason to be skeptical that subjecting all shipments to enhanced screening would make much of a dent in America’s fentanyl abuse.

Fentanyl and fentanyl precursors are increasingly made in labs in India, Myanmar, and other Southeast Asian countries, not just China. Moreover, drug trafficking networks are highly adaptable, shifting production and shipping routes in response to enforcement efforts.

CBP screens all parcels, regardless of value, using technological equipment to detect illegal and dangerous merchandise. It seizes thousands of packages each year, according to the agency’s own data. Even with improved screening, there are limitations to detection methods—few drug-sniffing dogs are trained to detect fentanyl and fentanyl precursors, for example—which means that targeting small package shipments is unlikely to meaningfully disrupt these networks. Likewise, flooding the customs process with more paperwork for routine shipments would likely mean fewer resources available to ferret out illegally shipped drugs.

Conclusion

The de minimis exemption serves as a crucial trade facilitation tool that particularly benefits lower-income consumers. Rather than eliminating it, a more effective solution would be to address the underlying incentives by eliminating tariffs on clothing and footwear—the primary product categories using the exemption. This would maintain consumer benefits while removing the incentive for shipping workarounds, simplify customs enforcement, and end what amounts to a regressive tax on basic consumer goods. Such a targeted approach would preserve the efficiency of legitimate trade while allowing customs resources to focus on genuine threats.

Chris Edwards and Yasmeen Kallash-Kyler

In a seeming reversal, the Trump administration is rumored to be considering ending the US Postal Service’s quasi-independence and absorbing the company into the federal bureaucracy. The Washington Post reported yesterday, “Trump is expected to issue an executive order as soon as this week to fire the members of the Postal Service’s governing board and place the agency under the control of the Commerce Department.”

That would be a mistake, creating an agency even more distant from the entrepreneurial postal system that America needs. Milton and Rose Friedman described entrepreneur Pat Brennan’s battle against government mail back in their 1980 Free to Choose television series:

Pat Brennan became something of a celebrity in 1978 because she was delivering mail in competition with the United States Post Office. With her husband she set up business in a basement in Rochester. New York, soon it was thriving. They charged less than the Post Office and they guaranteed delivery the same day of parcels and letters in downtown Rochester. There is no doubt now that they were breaking the law as it stood. The Post Office took them to court, the case against them was simply that they should not be handling letters. The Brennans decided to fight, and local businessmen provided the financial backing.

[Pat Brennan:] “I think there’s going to be a quiet revolt and perhaps we are the beginning of it. That you see people bucking the bureaucrats where years ago you wouldn’t dream of doing that because you’d be squelched. Now, with tax revolts and with what we’re doing, people have decided that their fates are their own and not up to somebody in Washington who has no interest in them whatsoever. So, it’s not a question of anarchy but it’s a question of people rethinking the power of the bureaucrats and rejecting it.”

The revolt against the government postal system has taken longer than Brennan had hoped. Despite decades of technological advances, including email, Congress still imposes a legal monopoly on snail mail. Entrepreneurs are busting open space travel, but the government still dominates postal services, passenger rail, air traffic control, airports, transit systems, and many other industries.

Sometimes Trump does “rethink the power of the bureaucrats,” as he did back in December musing about USPS privatization. Is he now changing his mind and considering burying the USPS in the stagnant bureaucracy? We hope not. The USPS’s inefficiency and losses are directly attributable to federal ownership and political mandates, as discussed here. Full privatization would provide the flexibility that the company needs to adjust and survive in our continually evolving economy.

Here’s a 1978 NYT piece describing Brennan’s battle. This 1979 piece in Reason summarizes USPS policy at the time. This study examines postal privatization.

Thomas A. Berry and Ethan Yang

Colleen Hroncich

With Idaho potentially on the verge of enacting its first school choice program, it seemed like the perfect time to profile a microschool in the Gem State.​As a special education teacher, Sarah Riesgo tried to find a school that worked for her sons who have special needs. She tried public and private, but “there was not a place where they were thriving,” she recalls. She decided to switch to homeschooling.

Several of her students and their parents asked where she was going because they wanted to follow her to her new school. When she explained she was going to homeschool, a few of the moms asked if she could homeschool their kids, too. She’d never thought of that, but she agreed to give it a try. She started with six or seven kids in her living room for the remainder of the year. But word spread, and some other families asked if their children could join. “We actually ended up renting a little one-room schoolhouse where I had fifteen kids last year,” Sarah explains. “And it kind of spread by word of mouth. We grew into an actual building this year, and now we have thirty kids, so we doubled from last year—without advertisement.” 

This is the first year Sarah’s microschool, which she named Victory Christian Enhanced Learning Center, is open to the public. The current enrollment is K‑8 with a mix of homeschoolers and kids from public and private schools. She uses a one-room schoolhouse approach with combined grades and an individualized approach to content. 

“If they’re closer in age, we’ll do, like in math, we’ll do introductions to new concepts together, and then we’ll kind of break off,” she says. “Really it’s not as much by grade, but it’s more the individual student. So if I have a third grader that’s struggling, he might need first- or second-grade work, which is totally okay. I’m not going to put him in the first-grade class. I still keep him with third grade and then just tailor his work to his own needs.”

They start every day with the pledge, then prayer time, and then a group devotional. Then they split off into individual classrooms to work on the core academics: math, literature, science, and history. Toward the end of the day, they have “enrichment” courses, which include physical education, gardening, and animal care. At the end of the day, the groups all gather together for choir.

“We do a lot of agricultural science,” Sarah says. “We have two baby goats right now, and we have ferrets. In the spring, we’re getting our eggs again, but we had chickens last year, and they have a rabbit. So the kids learn how to cultivate that kind of stuff and be stewards of what they’re given and take care of the animals. And it’s really been a fun experience for them.” Eventually, she hopes to find a bigger space with more land, but she feels very fortunate to have found a place that lets them do all of this.

Victory Christian’s full-time program is Monday through Thursday, but parents can also choose the hybrid homeschool enrichment program. “They get to pick two days a week to come—and that’s totally up to the parents,” explains Sarah. “If they’re doing a homeschool program or anything like that, they can come here, and they can socialize. We have three teachers where they can get some extra help if they need it for math or anything. And then they’re also part of our agricultural science stuff too, so they get that experience as well.” The teachers will send packets home for the other days if the families want so the kids can stay on track with the full-time students. 

Sarah is being careful in terms of expansion because she wants to keep the benefits of the small environment. She says, “We do want to grow, and eventually the dream is to have our own land and our own little, you know, modules on there. So we can have more space for the garden and the chickens and the goats. Over the summer, we plan on advertising and kind of spreading the word and letting people know we exist. And then we are going to end up hopefully just getting like a second third-fourth grade class or a second kindergarten class. I still want to keep the class sizes small; that way each kid is able to have individualized attention.”

It’s too early to say whether Sarah would participate in a school choice program if one is passed in Idaho. The Idaho education tax credit that was passed by the Senate this week and is heading to the governor would provide a $5,000 tax credit for eligible education expenses, including microschool tuition. It’s unclear if microschools would have to apply to participate in the program or if parents would just submit their expenses. Sarah and her staff have discussed the idea and need to know more before deciding.

“As far as I know, right now I have the lowest tuition in the state, and I try to keep it that way just to make it affordable for families. We were fortunate to receive some donations and grants where we are able to scholarship some students,” she says. “My goal is to make this accessible to as many families as we can, which is why we try to keep the costs low. We really just cover operational costs here, and we go by donations and we go by grants. Once we look into it—and if we find it would be helpful and it would allow more families to be able to benefit from us—then I think we would be on board. We just have to check into it more.” 

Tad DeHaven

A 2011 poll taken during the Obama administration found that 60 percent of those surveyed believed that the federal budget could be balanced by simply eliminating waste, fraud, and abuse. Half said Social Security and Medicare aren’t a problem for the budget. 

Those respondents were wrong.

If that survey were conducted today, the results would probably be about the same. And if Elon Musk’s Department of Government Efficiency (DOGE) isn’t more careful, these myths could become further ingrained in the public’s mind.

Waste (a subjective term) and fraud are natural by-products of government spending. The federal government will spend approximately $7 trillion this year, with a budget deficit of almost $2 trillion. Spending on Social Security old-age and survivor benefits will be around $1.4 trillion, and net spending for Medicare will be close to $1 trillion. Put out a giant strobe light, and moths, bugs, and other undesirables will flock to it. 

That’s not to suggest that waste and fraud aren’t issues to be addressed. They are. Indeed, the Government Accountability Office and the government’s inspector generals have been investigating and reporting on it for decades. (Curiously, Trump fired 17 inspectors general shortly after taking office because “They’re not my people.” Well, they’re not supposed to be. They’re supposed to maintain independence—that’s the point.)

DOGE’s ultimate aims remain unclear. Perhaps that’s an intentional strategy, or perhaps it’s because the team is freshly tackling a financial operation equal to almost a quarter of the nation’s economic output. If it’s more the latter, the learning curve DOGE faces is as steep as Yosemite National Park’s El Capitan. That’s why Cato submitted to DOGE a report on how to downsize and reform the federal government. That’s why our Downsizing the Federal Government website exists. Other knowledgeable experts and organizations have done the same. 

It is thus disappointing that in the rush to post DOGE’s findings on X, the claims have sometimes turned out to be inaccurate or misleading (see today’s column from Ramesh Ponnuru).

This week, the most counterproductive example came with Musk’s X announcement that DOGE had discovered what “might be the biggest fraud in history.” But what looked like evidence the Social Security Administration has been paying benefits to millions of dead Americans turned out to be previously known issues with government recordkeeping. (Reason’s Eric Boehm has the details.)

It’s counterproductive because rising costs and demographic pressures are causing Social Security’s financial problems (see this new Cato analysis). But thanks to one erroneous X post, conceivably millions of Americans now incorrectly believe Social Security’s problem is fraud that the Trump administration can remedy (a notion the president is already happily encouraging).

Politicians are already terrified of confronting Social Security’s long-term imbalance because of the media-fueled public backlash that would ensue. Social Security recipients don’t want to hear that reigning in benefits growth is necessary to fix that imbalance. They don’t want to hear that the programs they benefit from are the main cause of the federal government’s massive debt problem. 

The average citizen wants to hear that these problems can be solved with a little housecleaning by eliminating amorphous waste, fraud, and abuse. Politicians know this, which is why both Republicans and Democrats always say they’re going to root it out when asked what they’ll do about excessive federal spending and debt.

In 2011, then–Vice President Joe Biden “announced that $5.6 billion in fraud was recovered across the government” and discussed “new initiatives to eliminate wasteful government spending.” The nominal federal debt in 2011 was about $15 trillion. Today, it’s over $36 trillion and counting.

Targeting “waste, fraud, and abuse” didn’t solve the problem, and it never will.

At the very least, DOGE has an opportunity to help the public better understand the federal government’s spending problem. It should use examples of waste and fraud to make the case that agencies and programs need to be pulled from the roots. And if DOGE makes a mistake, which we all do when navigating the federal government’s financial labyrinth, Musk should admit it and use the occasion to inform accurately.

A lot of vested interests want to see DOGE fail. Avoiding making their efforts easier would be wise.

Peter Van Doren

The Washington Post recently analyzed the role of federal land in constraining new housing construction in Las Vegas. About 1.5 million homes could be built on developable federal land within two miles of the Las Vegas city limits alone. The article described a policy innovation developed by Sen. Harry M. Reid (D‑NV) that allows the Bureau of Land Management to sell land within a specific ring around Las Vegas.

But the article did not explore the more fundamental question: Why is there so much federally owned land in the western United States? The Bureau of Land Management administers 85 percent of Nevada, 57 percent of Utah, and nearly 50 percent or more of Arizona, Idaho, and Oregon.

An article in Regulation examines the history of land ownership in the United States. From the colonial period through the late 1800s, “the overriding aim of government land policies was to transfer land ownership as quickly as possible from the state to private citizens.” That ended with the creation of the National Forests and National Rangelands.

The first environmentalists led the withdrawal of federal range and timber lands from private claiming. They viewed private land markets with suspicion. The remedy was government ownership and management by professionals.

But the allocation and reallocation of land through the political process is difficult and slow. Instead, privatize as much federal land as possible. 

Romina Boccia and Ivane Nachkebia

When it comes to Social Security, Congress keeps dodging the inevitable—real reform. Instead, we get piecemeal proposals like the Land and Social Security Optimization Act (the LASSO Act), introduced by Rep. Paul Gosar (R‑AZ), which attempts to shore up funding by allocating revenues from public land to Social Security. While well-meaning, this proposal is a drop in the bucket and risks making future bailouts the norm.

A Drop in the Bucket

If enacted, the LASSO Act would allocate 10 percent of the annual revenue generated from public lands managed by the Department of the Interior (DOI) and the Forest Service (USFS) to Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund. Rep. Gosar claims that if the LASSO Act had been in place for fiscal year 2023, it would have added nearly $2 billion to Social Security, reducing the trust fund’s annual shortfall by 3 percent. However, this calculation ignores that the real annual shortfall was $133.4 billion, double Gosar’s estimate.

This discrepancy arises because Rep. Gosar counts $63 billion of the trust fund’s interest income as part of its revenues—a common mistake due to the complex way the trust fund operates. In reality, this figure represents interest on trust fund assets that exist only on paper. When the Treasury pays interest to the Social Security trust fund, it borrows the money from the public, adding to the federal debt. The trust fund is an intragovernmental accounting mechanism, not a savings depository.

As such, the $2 billion in land revenues would cover just 1.5 percent of the annual gap, barely making a dent in Social Security’s mounting fiscal woes. Moreover, public land revenues are projected to stay roughly the same for 2024 and 2025, while the OASI cash-flow gap is expected to grow significantly (see figure below), further diminishing the significance of these external funds.

Establishing a Precedent for General Fund Bailouts

Beyond being insignificant in addressing Social Security’s funding shortfall, Gosar’s proposal could normalize the practice of relying on general revenue transfers (i.e., funding sources other than dedicated payroll taxes and benefit taxation) to cover program benefits. This paves the way for more taxpayer-funded bailouts once the trust fund runs dry in 2033. 

Given chronic federal deficits, relying on general revenue transfers could mean trillions in additional borrowing, as Social Security’s long-term funding gap exceeds $25 trillion. Papering over real Social Security deficits may save politicians from political backlash in the short term by avoiding payroll tax hikes or benefit reductions, but it could exacerbate a fiscal crisis down the road.

Additionally, proposals like the LASSO Act, which seem to have found a “free” revenue source (similar to President Trump’s sovereign wealth fund idea), distract both the public and policymakers from the core systemic issues facing Social Security: an aging population and rising benefit costs. Instead of focusing on band-aid measures that fail to address these underlying challenges, Congress should consider adopting a mechanism that allows for meaningful, structural changes—such as aligning eligibility ages with life expectancy and shifting to price indexing for calculating initial benefits, which would preserve current benefits and slow the growth in future benefits. A nonpartisan expert fiscal commission may just be what the doctor ordered.

Rep. Gosar has championed responsible spending, as seen in his push for greater transparency in emergency expenditures. However, while strengthening Social Security is a worthy goal, the LASSO Act falls short and could do more harm than good. It fails to address the program’s core structural issues and risks delaying real reforms by normalizing general revenue bailouts. 

Instead, Congress should consider changes that fix Social Security’s systemic flaws and reduce the program’s unfunded obligations, lessening the tax burden on American workers, and protecting benefits for the most vulnerable seniors.

Walter Olson

The February 18 executive order moving to assert White House supremacy over federal regulation is momentous, but not for the reason mistakenly surmised in some early reports. In declaring a general presidential authority to pronounce on legal interpretation, in particular, the order does not aim to aggress against the role of the courts in saying what the law is. Rather, the order seeks to conquer and subdue what separate interpretive authority has resided in independent agencies, such as the Securities and Exchange Commission (SEC) and National Labor Relations Board (NLRB). 

The gist of the order, as regards legal interpretation, is thus that such agencies are no longer free to speak for the Executive Branch on what the law is in their area; only the White House or Department of Justice can henceforth do that in an authoritative way. 

In addition—and probably bigger news for many constituencies—the order says the (formerly) independent agencies must run proposed regulations by the Office of Management and Budget’s (OMB’s) Office of Information and Regulatory Affairs (OIRA), as ordinary agencies do. Also, it orders them to submit many aspects of agency management, including policy and many spending decisions, to White House supervision. 

If the Trump administration can make all this stick, it’s momentous. For example, the president could impose interpretations of broadcast law that Federal Communications Commission executives think are wrong but that serve his political objectives. While it’s presented as a fait accompli, the claim is going to be subject to judicial review.

As I read it, it will stick only if the court agrees to embrace a robust version of the so-called unitary executive theory (UET), holding in effect that the creation of the independent agencies was a constitutional mistake and that they should be folded into the Executive Branch. If they embrace such a theory, then this is one logical consequence. For example, submitting independent agency regulations to OIRA review has long been discussed as a likely implication of the unitary executive theory and has also found favor for policy reasons among some who do not go along with the full UET idea.

The new order also specifies that White House oversight will apply to the Federal Reserve Board’s role in conventional bank regulation and supervision but not to the conduct of monetary policy by the Fed’s Board of Governors or Federal Open Market Committee, which the White House surely hopes will remove one panic point for markets.

One bit of perspective: many (most?) of the big, important regulators are already outright Executive Branch creatures rather than independent agencies and always have been. Thus the Environmental Protection Agency, Food and Drug Administration, Occupational Safety and Health Administration, Internal Revenue Service, Federal Aviation Administration, and many others. OMB’s OIRA thus already wields formidable power even without adding in the Federal Trade Commission, FCC, Equal Employment Opportunity Commission, SEC, NLRB, and so on. 

On a less reassuring note, to the extent that this or any future administration embarks on a policy of regulatory retaliation against businesses or other entities it perceives as enemies, controlling the full portfolio of regulatory agencies will enable retaliation to be fuller, more comprehensive, and sometimes more focused than if it controlled only a large share of them. 

To get back to the unitary executive theory, you’ll notice that the Supreme Court has *not* handed down a decision embracing it as law. Should it do so, it’ll rank among the cases of the century. But it hasn’t! Many read the tea leaves as mixed; the court might embrace the theory in some respects but not all.

And this is a pattern. The Trump White House puts out one executive order after another and launches one management initiative after another that might make sense had it just won a landmark Supreme Court case uprooting old law, except that it hasn’t won those cases—it simply hopes to in the future. It’s speculating on wins in cases still unargued, carving nuggets from chickens still unhatched.

Thus, multiple spending-freeze moves seem based on the idea that the courts have already struck down the Impoundment Control Act as infringing on inherent executive power. (They haven’t.) Purges of employees at federal agencies, sometimes baldly based on inferred political loyalty, seem based on the idea that courts will nullify civil service rules and the Elrod v. Burns line of First Amendment cases (shielding some public employees from dismissal for partisan reasons on the same rationale. (They haven’t done those things, either.)

What happens if not all these cases go their way and the court doesn’t agree to strike down a long list of constraints on the executive, some, as with civil service, of considerable historic provenance? Then the events of recent weeks will look very much like a lawbreaking spree. 

James A. Dorn

When Chinese AI firm DeepSeek released its innovative R1 model in late January—an open-source model that performs strongly with models developed at much higher cost by leading tech firms—the AI world was taken by surprise. 

US venture capitalist Marc Andreessen called R1 “one of the most amazing and impressive breakthroughs I’ve ever seen.” It is built on DeepSeek’s V3 model, released in 2024, using lower-cost chips and optimized to run predictive large language models (LLMs) with reasoning capabilities. R1 roiled tech stocks on January 27, with superstar chip maker Nvidia’s market value falling by nearly $600 billion on the expectation that demand for its top-rated chips would fall in light of DeepSeek’s ability to economize on Nvidia chips while performing at high levels.

The Rise of DeepSeek

The emergence of DeepSeek as an important player in the tech sector is due to the efforts of 40-year-old Chinese billionaire Liang Wenfeng, who used capital from his quantitative hedge fund, High-Flyer, to launch DeepSeek in May 2023. As a nonstate/​private enterprise, DeepSeek made progress on its own by hiring talent from some of China’s leading universities and paying highly competitive salaries. The firm was set up as a research operation to advance AI models and eventually to build models to match human learning processes (known as Artificial General Intelligence or AGI). 

Early work led to LLMs V1 and V2, but the real breakthrough that brought worldwide attention to DeekSeek was the release of V3 in December 2024 and R1 a month later. The training costs for V3 were less than $6 million, far below the costs of training LLMs at major AI firms. AI models consist of algorithms and the data used to train them. Training consists of “the process of feeding an AI model curated data sets to evolve the accuracy of its output” (Chen 2023). 

The key features of V3 that make it attractive are its open-source AI, its exceptional processing speed and efficiency, and its ability to handle complex coding, math, and text creation. It is a versatile model that is expected to revolutionize AI. DeepSeek’s chatbot app, based on V3, is now a leader in the field, and V3 has distilled reasoning capabilities from R1, making it an even stronger model. 

When the United States imposed export controls in October 2022 to restrict China’s access to advanced semiconductors that might compromise national security, Chinese AI firms were determined to find ways to make progress without access to Nvidia’s most advanced chips. Liang Wenfeng surprised everyone by using less powerful chips along with innovative engineering to produce efficient AI models that could compete with OpenAI and other leaders in the field at much lower cost. 

One of the key innovations was to use an 8‑bit floating point (FP8) “mixed precision training framework” for DeepSeek’s V3 model. As Dirox reported, “This was the first time this framework has been used on such a large-scale model.” By doing so, DeepSeek economized on memory and achieved a dramatic increase in computation speed. 

Other features mentioned in the Dirox report that contribute to the success of V3 as a foundational AI model are:

“Mixture-of-Experts (MoE) Architecture,” which uses only the neural network (“expert”) needed to address a specific topic rather than tying up all the networks and parameters in the model for each task.
“Multi-Token Prediction (MTP),” which allows LLMs like V3 to speed up the time it takes to generate text.
“Multi-head Latent Attention (MLA),” which allows LLMs to capture key information from a body of text multiple times rather than just from a single sentence.

In addition, making V3 open-source means that its code is available to anyone for free and can be further refined to improve AI models, thus increasing the scope of knowledge available to individuals—even though DeepSeek’s transmission of information on sensitive political topics is restricted by the Chinese Communist Party (CCP).

From Follower to Innovator

Until DeepSeek’s innovations, it had long been held that only AI giants (like OpenAI, Google DeepMind, and Meta) could develop and run high-performance AI models. The popular mentality was that bigger models with more Graphics Processing Units (GPUs) perform better than lower-cost models, and that only wealthy AI firms could properly train the top models. 

That thinking turned out to be a myth with the development of DeepSeek’s V3/R1 models. As data scientist Sahin Ahmed notes, “By proving that smarter engineering can outperform brute-force computing, Liang Wenfeng has forced Big Tech to rethink their approach.” (On the technical innovations ushered in by DeepSeek’s models, see Dirox 2024 and Ahmed 2025.)

In an interview with media site 36 Kr in July 2024 (“We’re Done Following. It’s Time to Lead.”), Liang revealed his thinking on China’s march from imitation to innovation in the AI field. 

The following quotes from Liang’s interview are pertinent:

“We won’t go closed-source. We believe that establishing a robust technology ecosystem matters more.”
“More investment doesn’t necessarily result in more innovation. If that were the case, big tech companies would have monopolized all innovation.”
“DeepSeek remains entirely bottom-up. We also do not pre-assign roles; natural division of labor emerges. Everyone brings unique experiences and ideas, and they don’t need to be pushed. When they encounter challenges, they naturally pull others in for discussions. However, once an idea shows potential, we do allocate resources from the top down.”
“If someone has an idea, they can tap into our training clusters anytime without approval. Additionally, since we don’t have rigid hierarchical structures or departmental barriers, people can collaborate freely as long as there’s mutual interest.”
“The restructuring of China’s industrial landscape will increasingly rely on deep-tech innovation.”
“Hardcore innovation will only increase in the future. It’s not widely understood now because society as a whole needs to learn from reality. When this society starts celebrating the success of deep-tech innovators, collective perceptions will change. We just need more real-world examples and time to allow that process to unfold.”

At times, Liang sounds like F.A. Hayek when he speaks of the importance of “bottom-up” experimentation in designing AI models and the “natural division of labor that emerges.” Likewise, when Hayek talks about the competitive market process as a “discovery procedure,” it fits in well with Liang’s view of innovation. 

Nevertheless, Liang is restricted in what he can say about the use of knowledge in society and a true spontaneous order, like the free market, based on private property and the rule of law. DeepSeek’s LLMs avoid answering any questions that touch on sensitive political topics, such as any criticism of Xi Jinping or the CCP or what really happened at the Tiananmen protests. China’s lack of a free market for ideas is bound to hinder innovation, both in the quality of data used to train models and the interpretation of results.

China’s Future: Open or Closed Society? 

It is exciting to see DeepSeek develop open-source models that others can use to improve their own models, including “reasoning” models like R1. The fact that DeepSeek is a private/​nonstate research firm run by a self-made billionaire who favors the spread of knowledge bodes well for China’s future. 

The process of scientific discovery and innovation, however, cannot itself turn China into an open society where individuals are free to choose and express their ideas without the threat of political reprisal. As long as China’s leaders maintain the CCP’s monopoly on power and suppress freedom of thought, improvements in AI will be hampered by the state, as will the emergence of a harmonious society. 

Jeffrey A. Singer

Representative Nicole Malliotakis (R‑NY) has long opposed overdose prevention centers (OPCs). The City of New York and its Department of Health authorized the harm reduction organization OnPointNYC to open two OPCs, one in East Harlem and one in Washington Heights. They opened on November 30, 2021. Rep. Malliotakis opposed the move, and asked Attorney General Merrick Garland to intervene, citing the 1986 federal “crack house statute” (21 USC Sec. 856) banning people from owning or managing a “building or enclosure” where they know that people use federally prohibited substances. When her efforts failed, she introduced a bill in the House of Representatives nine days later to try to stop it. 

Exercising prosecutorial discretion, the US Department of Justice took no action against the OPCs, and by December 2024, the OPCs had reversed more than 1,600 overdoses—people who might otherwise have been fatality statistics.

Now Malliotakis is at it again. Hoping that the Trump administration’s Department of Justice would share her antipathy towards this harm-reduction strategy that has been saving lives in advanced countries like ours since 1986, she has written Attorney General Pam Bondi, asking her to enforce the crack house statute and close down the OPCs.

In a 2023 Cato Institute briefing paper, I reported that 147 OPCs operated in 91 locations and 16 countries. Since then, a new OPC recently opened in Providence, RI, after lawmakers there approved a pilot program. Last summer, Vermont lawmakers overrode the governor’s veto and authorized an OPC for the city of Burlington. Burlington’s mayor hopes to see it operating later this year. Minnesota’s legislature authorized up to 15 independently run OPCs in 2023, but none have opened thus far.

Researchers from the University of Pennsylvania and Brown University reported in the Journal of the American Medical Association in November 2023, “[T]he first 2 government-sanctioned OPCs in the US were not associated with significant changes in measures of crime or disorder. These observations suggest the expansion of OPCs can be managed without negative crime or disorder outcomes.”

In a study published in The Lancet in February 2024, researchers examined the overdose mortality rates in Toronto, Canada, between May 2017, when nine OPCs opened in the city, and December 2019. They found that overdose fatalities dropped significantly during that period in neighborhoods surrounding the OPCs but not in other neighborhoods.

In April 2024, scholars at the New York City Department of Health and Mental Hygiene reported in NEJM Catalyst on the city’s two OPCs’ first full year of operation:

“From November 30, 2021, to November 30, 2022, 2,841 individuals visited the two OPCs 48,533 times and staff intervened during 636 visits (1.3%) to prevent overdose-related injury and death. During this period, emergency medical services (EMS) were called only 23 times, and no overdose deaths occurred in the OPCs. Results suggest that the OPCs diverted up to 39,000 instances of public drug use and played a critical role in connecting participants to care, with 75% of participants accessing other harm-reduction, social, and medical services through OnPoint NYC.”

Besides saving lives and reducing public drug use, OPCs reduce the number of emergency medical services (EMS) calls and the costs associated with them.

Republicans have long espoused a commitment to federalist principles, i.e., “the division and sharing power between national and state governments.” In that spirit, Representative Malliotakis should respect the decisions of state and local governments as they grapple with the addiction and overdose crisis. She should let the “laboratories of democracy” experiment with harm-reduction strategies that have worked for 40 years in other advanced countries.

To that end, Congress should repeal the “crack house statute” or, at a minimum, carve out an exemption for local government-sanctioned overdose prevention centers.