In my opinion a public service doesn't need to be profitable at all, as long as it provides benefits in more important areas. I'm all for free education and free public transport and all that.

But in this case, the US (and EU) are subsidizing products that compete with local products, undercutting local products in price, in quality, and often not complying with safety standards, while also avoiding customs and sales taxes because the individual packages are too small to meet the limit.

You're basically supporting unfair competition, and paying to undermine your own quality standards and taxes. There's no benefit at all to the country that's paying for this.