A significant change is on the horizon for online shoppers in the United States as President Donald Trump moves to close a duty-free loophole that has allowed low-value packages to enter the country without incurring import duties. This decision is set to push up prices for customers of popular Chinese online retail platforms like Shein and Temu.
The term de minimis originates from Latin, meaning "of the smallest." In the context of US trade, this rule was enacted in 1938 and allowed tourists to bring back souvenirs worth up to $5 (approximately $112 today) without declaring them to customs. In the modern era, the de minimis exemption has enabled retailers to ship packages valued under $800 to US customers without paying duties or taxes. According to the US Customs and Border Protection (CBP), shipments under this exemption account for over 90% of all cargo entering the US, significantly benefiting online retailers.
Companies like Shein and Temu have capitalized on this loophole, attracting millions of US customers through aggressive marketing and ultra-low prices. The de minimis exemption has been instrumental in allowing these retailers to offer their goods at such competitive rates. Although neither company responded to requests for comment, they acknowledged last month that they have experienced rising operating expenses due to changes in global trade rules, indicating that price adjustments are forthcoming.
In February, Trump temporarily closed the loophole, but the suspension was quickly halted as customs inspectors and delivery services struggled to adapt. The executive order aimed to combat the illegal importation of synthetic opioids, such as fentanyl, which have devastating effects on public health. The order highlighted that many Chinese shippers exploit the de minimis exemption to conceal illicit substances within low-value packages.
Starting May 2, packages arriving from mainland China and Hong Kong will be subject to import duties, with charges expected to increase the following month. This move is consistent with previous efforts by the Biden administration to regulate the exemption and address the growing volume of de minimis shipments that complicate the monitoring of illegal or unsafe goods.
Consumers have already begun to see a rise in prices even before the new import taxes take effect. Both Shein and Temu have initiated price hikes for their US customers in anticipation of the May 2 deadline. A report from the American Action Forum, a conservative policy group, estimates that eliminating the de minimis exemption could lead to an additional $8 billion to $30 billion in annual costs for consumers.
This crackdown is not solely a US issue; similar low-value import rules exist in the UK and the European Union, allowing international retailers to reach millions of customers. There are concerns that the US's stringent measures may lead to an influx of cheap Chinese goods into the UK, prompting a review of low-value imports there. Currently, the UK permits packages worth less than £135 to enter without incurring import taxes, while the EU has proposed scrapping duty-free exemptions for parcels valued under €150.
Despite the changes, packages arriving under the de minimis exemption are still subject to inspections for illegal substances. However, experts argue that ending the exemption may not significantly deter drug trafficking, as most synthetic opioids enter through the US-Mexico border. Concerns have been raised that this policy shift could overburden US border officials, who are already stretched thin combating drug smuggling.
The National Foreign Trade Council (NFTC) warns that removing the de minimis exemption may divert CBP's focus from the border, where the majority of illegal goods enter the US. This could necessitate hiring and training additional personnel, which could cost millions or lead to reallocating agents from the already overwhelmed southern border.
In summary, the closure of the de minimis loophole will likely lead to increased prices for US consumers shopping on platforms like Shein and Temu, while also igniting discussions around the broader implications for international trade and border security.
