Trump ends de minimis loophole, upending online shopping from China

Trump ends China's de minimis loophole

As part of his broad unveiling of new tariffs this week, US President Donald Trump said he is closing a big trade loophole employed by Chinese e-commerce firms to deliver low-priced goods to the United States tariff-free. The rule, dubbed the de minimis rule, has allowed such firms as Shein and Temu to send duty-free products by mail flooding the United States — routinely valued at under $800 — internationally. Trump's action will have a radical restructuring effect on e-commerce as well as add to the expenses for consumers as well as merchants alike, the New York Times reported.

What is the de minimis rule?

First introduced in the Tariff Act of 1930 to exempt returning American tourists from duty on small foreign purchases, the de minimis provision now covers all low-value international shipments. In 2016, Congress increased the threshold to $800 per recipient per day, resulting in a tenfold increase in packages entering the US duty-free. These platforms and retailers like Shein, Temu, and lots of Amazon merchants have exploited this tariff loophole in order to forego tariffs and save costs, especially due to Trump's previous China tariffs.

Why is it targeted now?

The Trump administration listed both national security and economic grounds for doing away with the rule. Authorities cited the sudden spike in tariff-free Chinese imports — from $5.3 billion in 2018 to $66 billion in 2023 — as a revenue drain. The administration also blamed the loophole on the fentanyl trade, claiming that such a high volume of packages overwhelmed customs agents and made it impossible for them to detect illegal drugs. Old-fashioned US stores, which pay duties on bulk imports, have long fought the loophole, complaining that it provides an unfair advantage to Chinese firms.

New enforcement begins in May

The White House affirmed on Wednesday that the temporary extension of the de minimis rule had expired, and that systems of enforcement were in place. Enforcement begins May 2 at 12:01 a.m. Eastern time, all packages entering from China and Hong Kong — even those valued at less than $800 — will face a 30 percent tariff or a flat $25 per item, whichever is greater. These packages now have to go through the same customs process as more valuable merchandise. Trump's executive order specifically aims at shipments that move through the international postal system, seeking to shut down a major supply chain for fast fashion and low-cost e-commerce sites.

Internet sellers prepare for disruption

The shift is set to shake up the business models of Shein and Temu, which are based on direct shipping from Chinese factories to American consumers. Combined, the two platforms command around 17 percent of the US discount e-commerce market. Though both companies have started opening US warehouses and partnering with domestic sellers to reduce their reliance on China-based fulfilment, losing duty-free access is set to hinder their momentum.

Meanwhile, competitors like Amazon, Walmart, and other online retailers that fulfil orders from US-based warehouses could benefit. “Amazon, as a whole, as well as other online retailers that fulfil from US warehouses, will benefit as their competitors will be negatively affected,” said Yannis Bakos, a professor at NYU’s Stern School of Business.

Smaller sellers and consumers will feel the impact

The impacts won't be confined to retail behemoths. Numerous small and mid-tier online merchants — half of the top merchants on Shopify, for instance — rely on de minimis to maintain affordable shipping. A few even ship sub-$800 shipments to Amazon fulfilment centres to skirt duties. "Any of these sellers who were shipping directly from China are certainly going to be disrupted," stated Santiago Gallino, a professor at the Wharton School.

Experts believe this disruption could prompt more companies to consolidate inventory in US distribution centres and pivot toward bulk importing. But the transition will take time and resources, particularly for small sellers.

They will also pay higher prices. Abolishing the loophole may push up prices for cheap items, such as a $15 Shein dress costing $17. Analysis quoted by logistics company Portless puts an end to de minimis as potentially costing US consumers between $11 billion and $13 billion a year, with poorer and minority households particularly hit.

A seismic shift in cross-border e-commerce

With this new step, Trump is doubling down on his overall trade policy of reshoring US production and making the playing field even for China. But the abrupt elimination of the de minimis exemption, along with far-reaching new tariffs, spells a drastic reworking of the way merchandise comes into the US — and who gets to pay. Retailers, customs agents, and consumers are now scrambling to get ready for a post-loophole economy.