- The U.S. has ended the ‘de minimis’ tariff exemption for low-value goods from China.
- Goods under $800 will now face tariffs of up to 120%, rising to $200 per package by June.
- The move targets alleged unfair competition and fentanyl trafficking via small packages.
- Prices for goods from retailers like Shein and Temu have already increased significantly.
- Small businesses and consumers in the U.S. are expected to bear the brunt of higher costs.
What Is the ‘De Minimis’ Loophole?
The ‘de minimis’ loophole, originating from a 1930s U.S. trade policy, allowed goods valued under a certain threshold to enter the country duty-free. Initially set at $5, the threshold was raised to $800 in 2016. This policy has been widely utilized by e-commerce platforms, particularly Chinese retailers like Shein and Temu, to ship low-cost goods directly to American consumers without incurring import fees.
According to the U.S. Customs and Border Protection (CBP), over 1.36 billion shipments entered the U.S. under this exemption in fiscal year 2024, representing more than 90% of all cargo. Approximately 60% of these shipments originated from China. However, starting Friday, goods valued under $800 will now face tariffs of up to 120% or a flat fee of $100, which will increase to $200 in June. This is in addition to the 145% tariffs already imposed on Chinese imports as part of the ongoing U.S.-China trade war.
Why Did the U.S. Close the Loophole?
The Trump administration justified the closure of the ‘de minimis’ loophole on multiple grounds. The White House accused Chinese sellers of exploiting the loophole through deceptive shipping practices, thereby creating unfair competition for U.S. businesses. Industry associations in the U.S. have long advocated for the loophole’s closure, citing its impact on domestic retailers.
Another critical concern was the alleged role of small packages in facilitating the trafficking of fentanyl and other synthetic opioids into the U.S. President Trump stated in an executive order that these shipments contribute significantly to the opioid crisis. The CBP reported seizing over 21,000 pounds of fentanyl at the border in the last fiscal year, enough to potentially kill 4 billion people.
Impact on Chinese Retailers and U.S. Consumers
Chinese e-commerce platforms like Shein and Temu are among the most affected by the tariff changes. Both companies have relied heavily on the ‘de minimis’ exemption to offer low-cost goods to U.S. consumers. Reports indicate that prices for some products have already surged. For instance, Bloomberg data shows that the average price of Shein’s top 100 beauty and health products increased by 51%, while a 10-piece kitchen towel set saw a staggering 377% price hike. Women’s clothing prices rose by an average of 8%.
Temu has reportedly transitioned to a local fulfillment model to mitigate the impact of the new tariffs. The company claims that U.S. pricing remains unchanged, but the long-term effects on its business model remain uncertain.
Challenges for Small Businesses
Small businesses in the U.S. that rely on importing low-cost goods from China are also facing significant challenges. Kelly Kendall, a craft-supply business owner in Chicago, imports 80% of her materials from China. The new tariffs will force her to raise prices on her products, potentially affecting her customer base. Kendall has explored sourcing materials domestically but found limited options due to her small order volumes.
Canadian sellers who export Chinese-made goods to the U.S. are similarly impacted. Justin Crowder, an e-commerce entrepreneur in Montreal, experienced customer backlash earlier this year when unexpected import fees were applied to his products. He had to absorb the costs to maintain customer satisfaction, highlighting the ripple effects of the tariff changes beyond U.S. borders.
Will the Changes Curb Fentanyl Trafficking?
While the closure of the ‘de minimis’ loophole aims to curb the flow of fentanyl into the U.S., its effectiveness remains uncertain. Before 2020, 90% of fentanyl consumed in the U.S. originated directly from China. However, most of the supply now enters through the U.S.-Mexico border. Increased scrutiny of small packages may help intercept illicit shipments, but the broader impact on the opioid crisis is yet to be seen.
China’s Response
China has criticized the U.S. decision, arguing that it will primarily hurt American consumers. He Yongqian, a spokesperson for China’s commerce ministry, stated that the tariff hikes would increase costs for U.S. shoppers and degrade their experience. Chinese industry groups have echoed these sentiments, accusing the U.S. of engaging in ‘hegemonic actions.’
Shein is reportedly reconsidering its planned London IPO due to uncertainties surrounding the new tariffs. Meanwhile, JD.com has pledged to purchase 2 billion yuan worth of products from Chinese exporters to support the domestic market.
*Source: U.S. Customs and Border Protection, Bloomberg, Chinese Ministry of Commerce*