Last week, the tax-free import of small packages to the United States was halted by former President, Donald Trump. This decision ends a method previously used by large Chinese delivery companies like Shein and Temu to avoid duty charges, potentially leading to increased costs for consumers. This move eradicates the so-called ‘de minimis exemption’, permitting the duty-free import of goods valued at $800 or less into the United States. E-commerce giants have been taking advantage of this loophole to ship hundreds of millions of packages to U.S. customers.
Originally, the exemption for goods originating from China and Hong Kong was terminated in May amidst the U.S.-China trade war. Now, this action has been extended globally. According to an executive order issued last Wednesday, many shippers have been using deceptive practices, and hiding illegal substances in imports entering through global commerce. The risks associated with evasion of regulations, deceit, and illegal drug importing are substantially higher for low-value items previously qualifying for duty-free de minimis treatment.
This move signifies further negative developments for Chinese sellers and their customers as it prohibits the rerouting of small shipments via other countries, like Vietnam, without incurring duties. For instance, Vietnam has been subject to a 20% tariff rate. The executive order further stipulates that the source of the package is declared to the U.S. Customs and Border Protection (CBP).
In order to manage this situation, businesses such as Shein and Temu started to stockpile goods and use bulk shipping methods to American warehouses to reduce shipment times. Temu announced a change in its shipping model soon after the de minimis exemption for China was abolished in early May. Goods were dispatched from the U.S.-based distributors to fulfill American orders, and Temu stated it had no plans to change its pricing for American consumers.
However, many of Temu’s American customers have reported increased prices and rapidly diminishing stock since the changes were implemented. Companies will eventually need to replenish their inventory, and the global removal of the de minimis exemption will leave businesses with few workarounds. According to Chris Tang, a professor of global supply chain management at the University of California, Los Angeles, businesses will now have to pay substantial import taxes even on bulk shipments, potentially leading to increased costs for consumers.
This decision will also have an impact on numerous sellers trading on Amazon Haul, a discount alternative to Temu and TikTok Shop. The repeal has an immediate effect on an enormous volume of packages that Americans are used to receiving free of duty. In fact, the number of such packages has grown significantly over the past decade, with the CBP formerly reporting that it processed ‘nearly 4 million duty-free de minimis shipments a day.’
Evidence suggests that the majority of these shipments originate from China and Hong Kong. During the last fiscal year, the CBP reported that the U.S. received 1.36 billion packages under the ‘de minimis exemption’. The recent executive order, which takes effect on August 29, makes virtually all internationally shipped goods liable for tariffs applicable in the country of origin.
The applied duties will be approximately $80 per item if the tariff rate in the country of origin is less than 16%, $160 for a rate between 16% and 25%, and $200 for any rate exceeding 25%. These extra costs may be transferred to the consumers. The impact will be felt most keenly by households on lower incomes, who purchase goods from Chinese e-commerce sites.
It’s been reported that around 48% of de minimis packages are shipped to the poorest zip codes in America, while the richest ones receive only 22% of these packages. There was an initial decrease in the de minimis exemption for Chinese goods by the Trump administration in May, followed by a tariff reduction on cheap packages from 120% to 54%. Additionally, a fixed tariff of $100 was introduced for such goods.
Last week, a federal trade court declined to prevent Trump from abolishing the de minimis exemption for goods originating from China, stating that this issue was already part of a broader case challenging Trump’s tariff policies. As a part of Trump’s ‘Big Beautiful Bill’, a plan was in place to repeal the de minimis rule for all countries by July 2027. This legislation also includes a civil penalty up to $10,000 for multiple violations of this rule.
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