Trump tariffs, reforms target loophole used by Chinese online retailers

Under the de minimis exemption, products below that amount are able to enter the US without tariffs, boon for China's e-commerce retailers who ship often cheaper wares directly to consumers in the US

By Jennifer A. Dlouhy, Josh Wingrove and Spencer Soper

 

President Donald Trump’s new trade levies against China, Canada and Mexico include a broadside against e-commerce, with apparent plans to extinguish a long-held tariff exemption for packages worth less than $800. 

Trump’s executive orders directing 25 per cent levies on Canada and Mexico — plus a 10 per cent duty on China — specify that the “de minimis” exemption for small packages no longer applies. Under the exemption, products below that dollar amount are able to enter the US without tariffs — a boon for China’s e-commerce retailers who ship often cheaper wares directly to consumers in the US.

 

 

The full scope of the de minimis changes — whether they apply just to the new tariffs issued Saturday or to older existing trade levies — was not clear. A White House spokesman did not respond to questions about its reach. 

 

However, trade lawyers said Trump’s language cracking down on the de minimis exemption could apply broadly, even to existing duties against China, Canada and Mexico.

 

Regardless, the impact of the change threatens to fall most squarely on China, affecting retailers including Alibaba, JD.com Inc., PDD Holdings Inc.’s Temu and fashion-focused Shein. American shoppers and companies imported about $48 billion worth of shipments from the world under that loophole in the first nine months of last year, according to US Customs and Border Protection estimates.

 

Alibaba, JD, Shein and Temu did not immediately respond to requests for comments.

 

The gaping de minimis loophole has given China-linked e-commerce companies huge advantages over brick and mortar retailers and online retailers such as Amazon.com Inc.

 

Temu in particular exploded in the US by offering steep discounts on a variety of products for people willing to wait a week or so for delivery. The popular marketplace — which EMarketer Inc. estimates will sell $30 billion in products to US shoppers this year — became an alternative to Amazon as well as retail chains such as Hobby Lobby, Party City and dollar stores. 

 

Shoppers showed they were willing to wait for delivery in exchange for discounts, defying Amazon’s quick delivery model. By sending individual orders direct to customers from China, they avoid tariffs through the de minimis exemption. Large retail chains that buy inventory wholesale imported on ships generally pass the tariff costs along to customers.

 

A senior administration official who briefed reporters on the new tariffs Saturday sought to justify ending the exemption, saying that the US loses a tremendous amount of tariff revenue and that the loophole for smaller value packages also impedes the ability of US customs officials to catch fentanyl moving into the country. The official did not specify the scope of the change.

 

Lawmakers have warned that the de minimis route makes it easier for fentanyl and the precursor chemicals used to make the deadly drug to evade customs and enter the US undetected. 

Large Loophole

The smaller-value shipments account for more than a tenth of China’s exports to the US, according to research from economists at Nomura Holdings Inc.

 

The total volume of de minimis shipments into the US hit 1.4 billion packages in fiscal year 2024, according to US Customs and Border Protection, about double the number in 2022. Discount online retailers like Temu and Shein contributed significantly to the spike in volume.

 

Sensing such a change, Temu has already been shipping more inventory in bulk to the US and paying tariffs to have it stored in warehouses near big cities to narrow delivery times. That shift should help blunt the effects of the de minimis change, but will still put pressure on its discount model.

 

Amit Khandelwal, a professor at the Yale University Jackson School of Global Affairs said in an emailed statement that “de minimis shipments were relatively more important for lower-income consumers” and that removing the exemption would hurt those buyers more.

 

Trump’s new tariffs to take effect at 12:01 am New York time on Tuesday and are an effort to punish Canada, Mexico and China for what the US president says is a failure to crack down on flows of fentanyl and illegal immigrants across US borders.