Well, wouldn't the tradeoff there be time? In the past when I've ordered products from China or Korea, the tradeoff for free or $.99 shipping was that I had to wait two weeks. I do remember some shops had started keeping local warehouses for faster shipping times, so it seems like the foreign sellers are coming at it from both ways; they will ship small parcels that take awhile to arrive, or they'll send locally and eat the shipping costs.
I'm not convinced at the moment that it's the shipping alone that is causing the issue with the US sellers, especially given the limitations of the cheap shipping agreement (under 4.4 lbs I believe it said).
It means cheap items (like small plastic items etc), where the cost of manufacture is very low, even if they can be manufactured at the same cost in the US can not beat the Chinese seller because they can't compete on price.
A small domestic package just costs more than one shipped from China. So yes, it's possible they can instead compete on delivery time, and they do.
But all else being equal, it seems dumb that they can't be given access to the same pricing as Chinese sellers if they conform to the same rules (drop off at shipping hubs, labeling standards etc).
For your consumer value, sure, but it's still a quirk that you can ship something across the glove cheaper than across states. It's because you only pay China for shipping, not the US that has to deliver it inside the border.
Are there packages for which one could trade cost for time, by shipping from USA to China (or more realistically, Mexico) first and then shipping back?
I'm not convinced at the moment that it's the shipping alone that is causing the issue with the US sellers, especially given the limitations of the cheap shipping agreement (under 4.4 lbs I believe it said).