What was once too much of a nuisance for the U.S. to regulate became too big of an economic force to ignore any longer.
A U.S. trade provision dating to the 1930s, which eventually cleared the way for more than a billion small parcels each year, ended Friday. While winners and losers are emerging, the extra time, paperwork and money are gumming up the gears of global e-commerce and adding a fresh layer of confusion in President Donald Trump’s reordering of international trade.
The value of goods subject to the “de minimis” tariff exemption — from Latin meaning “too small to matter” — has been $800 since 2016, very generous by global standards. The number of small packages entering the U.S. duty-free exploded to nearly 1.4 billion last year, a 600% increase over the prior decade, according to U.S. Customs and Border Protection. An estimated three-quarters or more came from China, with a big share from Shein Group Ltd. and Temu.
Pandemic-restricted Americans loved the cheap goods and the speediness of factory-to-doorstep service. But the tsunami of stuff raised concerns in Washington about foreign rivals undercutting small businesses, illegal drugs like fentanyl entering the country and imports produced with forced labour slipping in undetected.
“There actually is bipartisan support,” said Washington-based Greg Husisian, head of the international trade practice at Foley & Lardner. “This was intended for grandma sending over an $80 package of toys, not like a huge Chinese company sending tens of thousands of packages every single day of $12 T-shirts.”
Plans for a crackdown were underway during the Biden administration, then Trump followed through in May by scrapping the exclusion for China and Hong Kong. Before China and Hong Kong lost the de minimis exemption, 4 million duty-free packages arrived in the U.S. on average each day, said a senior administration official. Since then, that’s dropped to an average of about 1 million de minimis packages per day.
Now small parcels that used to let inexpensive items flow easily from across the rest of the globe will get hit with a tariff and customs forms, too.
The move is another revenue raiser for the U.S. government, at the expense of businesses and consumers who’ll pay the new taxes.
The Congressional Budget Office in 2024 estimated that ending the de minimis exemption just for goods from China would result in more than $23.5 billion in additional customs revenues and fees over a decade. As of Tuesday, CBP had collected more than $492 million from packages that would have been duty free before de minimis was scrapped for China and Hong Kong, according to a senior administration official.
Other countries eyeing similar fiscal windfalls are watching the U.S. as a test case. The European Union is considering eliminating its €150 ($175) de minimis threshold, and the U.K. is reviewing its £135 ($182) level.
Those selling to Americans from overseas are likely to feel the sting soon.
“These measures could threaten consumer-facing exporting sectors, as well as the pipeline of small and medium-size enterprises that may think twice about exporting,” the British Chambers of Commerce said in a blog post this week. “Firms accustomed to frictionless exports will now face permanently higher costs.”
Blocking China
Among those grateful for the change is Jim Tuchler, who owns a Chicago-area business called GiftsForYouNow.com. Over the past few years, his sales have been increasingly undercut by sellers he’s never heard of on marketplaces such as Amazon.com Inc. and eBay Inc.
They seemed to be operating out of Chinese factories, also personalizing goods before shipping them to consumers, but with profit margins that didn’t make any economic sense. Tuchler says he’s already seen an uptick in sales since the China exemption went away.
“Despite prices going up, unit volume and orders are up over last year,” he said.
Yet for the cogs of global trade, the transition hasn’t been smooth. Packages arriving in the U.S. by mail will be subject to a levy based on the prevailing tariff that applies to the contents’ country-of-origin.
Alternatively, postal services abroad may levy a flat fee of $80 to $200 per item, based on the exporting country’s so-called “reciprocal” tariff rate imposed by Trump, though that is only available for six months and is likely to be the more expensive option in most cases.
More than two dozen national postal agencies have stopped taking U.S.-bound packages for delivery, citing insufficient CBP guidance on how to comply with paperwork and payment requirements.
“These suspensions will remain in place pending further information on how U.S. authorities will operationalize these measures as well as actual implementation of the required operational changes,” the Universal Postal Union, a UN agency, said in a statement this week.
A CBP spokesperson said the agency has a comprehensive strategy to ensure effective enforcement of the change and has co-ordinated with carriers and trade partners to minimize disruption.
Commercial Carriers
Items shipped using commercial parcel companies will be assessed with all applicable duties, including the country-specific rate and Trump’s industry-specific tariffs.
Since U.S. de minimis ended for China and Hong Kong, carriers including United Parcel Service Inc. and FedEx Corp. have identified drops in volume between the US and China in their most recent earnings calls, saying it’s delivered a blow to their most profitable trade lane.
The major carriers are assuring customers they’re preparing to manage the shift, including by adding surcharges for handling customs paperwork and tariff payments.
“We’ve always dealt with volatility,” Mike Parra, the chief executive officer of DHL Express Europe, said in an interview this month. “This too will pass, and the reality of that is we will adapt.”
Believing that everything will be OK in the end is the business of Mondo Cattolico. Just opposite St. Peter’s Basilica in Rome, the shop sells religious articles like cross necklaces, votive candles and rosaries to tourists from all over the world. An increasing share of the store’s business is sold directly to consumers in the US through its website.
Most orders that ship to America are worth between $100 and $200, according to Fabrizio Enea, the shop’s online sales manager. “Until the elimination of de minimis, this allowed us to ship smoothly without our customers incurring duties or additional charges.”
Enea says they’ve recently raised prices by 20% to cover the extra costs — which include the applicable tariff, higher shipping costs and customs-related surcharges. Still, Enea says it’s worth it to make sure his customers continue to get their orders quickly and without the hassle of paying the tariff themselves.
Parcels Postponed
The pause in postal package service has spurred a flurry of emails and notices from businesses worldwide, warning US customers of delayed orders and eventual price increases.
“Beloved Danish brand ‘Knitting for Olive’ was the latest to announce that they can no longer ship to the US for smaller orders, causing a lot of panic across stitchers in the US,” Danielle Romanetti, owner of Virginia-based yarn shop fibre space wrote to her customers last week.
While Romanetti said her inventory is well stocked, she worries about the wider impact on the industry and the big hit to the online connectedness of the knitting community: She’s often introduced to new brands by customers who’ve ordered something directly from places including Denmark, Spain and Peru.
Consumer Options
Chicago-based FloraSense Inc. sells app-connected gadgets that monitor houseplants’ health and push alerts when water or sunlight levels need adjustment. Chief Executive Officer Aabesh De said even though he imports most of his goods in bulk, the end of de minimis for Chinese goods has already hit his expansion and innovation plans.
Not to mention all the other tariffs, which have already forced Flora to reduce staffing by about 20%, he said, citing “lean” margins.
The end of de minimis can also lead to the loss of consumer choice.
Rather than importing thousands of pairs of gardening gloves or shears, only to find they’re not popular, de minimis allowed Flora to introduce a new product by shipping one-offs straight from the factory to customers.
Without it, De says he’s had to cut the product launches planned for the next year by 75%.
—With assistance from Cailley LaPara, Kate Sullivan and Malcolm Scott.
