The on-again, off-again back and forth about tariffs between the U.S. and Canada has caused confusion and uncertainty on both sides of the border for businesses of all capacities, but the latest changes to what’s known as the “de minimis” exemption are likely to impact small businesses in a big way.
De minimis is a Latin term which means something is insignificant or of minimal value. In the context of international trade or packages crossing the U.S.-Canada border, it refers to a set dollar value below which an item does not attract duties or a tariff.
Until now, the U.S. de minimus exemption, introduced in the 1930s, allowed a tariff-free flow of low-value items from Canada to the U.S. regardless of where they’re from or where they’re made. This allowed small businesses to send as little as a single product over the border, as well as everyday Canadians to send gifts, care packages and the like, duty-free.
“It essentially says that up to a certain amount, in this case, $800, you didn’t have to go through the whole rigmarole of clearing customs, both in terms of bureaucracy and paperwork and the application of certain duties and taxes and that exemption is now being eliminated,” explains professor Drew Fagan from the Munk School of Global Affairs and Public Policy at the University of Toronto.
While the U.S. ended the exemption for China and Hong Kong in May, it will be suspended for all other countries on August 29th, including Canada. Going forward, the only items that qualify for tariff or duty-free trade are those where it can be proven – with supporting paperwork – that 50 per cent or more of the materials originate in North America, as per the Canada-United States-Mexico Agreement (CUSMA). All other items do not qualify, even if they are valued below $800.
“What the Trump administration has done is essentially said that any producer of goods exporting to the United States – think craftspeople making earrings, handmade ties, all sorts of products – anything under $800 now will be treated like $800,000. So you will face a potential tariff on going in as well as the hassle of being cleared at customs, which means, as much as anything, a lot more paperwork,” says Fagan.
Tanya Walia Monteiro, the owner of The Flamingo on Queen Street East, says she’s already grappling with paperwork problems even before the exemption is officially scrapped.
“I actually had to do this a couple of weeks ago because an order was returned from Purolator because it didn’t have the right documents. There were about 10 items in there…so I had to fill out [multiple] forms for each product that I was shipping. There was things from China, things from India, things from Canada, and then some things that were actually made in the States,” she explains.
“So there’s something where you declare plants. Are there any plants? There’s something you declare if there’s wood, any seeds, anything like that. And it was just so complicated to ship that one order. I spent, I think, two hours filling these forms out.”
Monteiro says the order was a net loss for her as she refunded the customer’s shipping costs to compensate for the delay and paid to have it shipped again.
“It cost me, I think almost $100 in all the different fees…and I even told them ‘I’m going to give you a store credit because I don’t know what the tariffs are going to look like for you.’ So there’s costs, there’s manpower hours, there’s so many things that are going into this,” she says.
As the owner of a small business, Monteiro says she’s not sure it’s worth the effort and hassle.
“I haven’t made the decision to just not completely ship there at all … but that one order really has me rethinking about it because we don’t have two hours a day to fill out these [forms], she says.
In the interest of transparency, she has posted a notice on her website warning U.S. customers of a potential increase in costs.
“As Canadians, we’re used to paying duties, but as Americans, they’ve never had to do this before. So I’ve had to put the disclaimer saying, ‘I’m not responsible for these, you’re welcome to place the order, but I would suggest that you do your own research towards them.’ And I don’t think it’s a surprise that my orders have dropped from the American side. I mean, the majority of my online orders – 80 to 90 per cent – were American,” she says.
“So to combat that and to make up for that, we’ve had to put lower shipping minimums on our Canadian orders – so they’re at a minimum of $25 now. So you place an order of a minimum of $25, use a code, and then you get free shipping across Canada. However, we take the hit for that. Shipping is still very expensive within Canada. I used to ship to Texas for cheaper than I shipped to Montreal.”
Fagan says the options for small businesses are limited if they’re unable to invest the time and energy into the paperwork involved in shipping to the U.S.
“For a small craftsperson, this will have an impact. A $100-$200 [order] might not be worth the effort. Which may mean that they have to set up shop in the United States, ship products down en masse and then distribute them from there,” he says.
“But maybe you’re not at that step in the evolution of your business where that kind of cost makes sense. Maybe some people will just say, ‘Okay, I’m going to have to depend on the Canadian marketplace, or maybe other markets that aren’t taking this step, like Europe, where we have free trade. So it’s unfortunate.”
Monteiro says small businesses like hers don’t necessarily have the wherewithal to withstand such drastic changes in trade policies.
“Small businesses like us are the ones that are truly affected because we already have such a hard time building equity. We’re not Ford Motors. We don’t have millions of dollars just sitting in a bank account where we’re like, ‘Okay, fine, we’ll figure it out. We’ll pivot.’ If we had that equity, we could figure something else out, but we don’t have time or equity to be able to do that,” she says.
The Canadian government has not yet announced if it is considering retaliatory measures in response to the suspension of the de minimis exemption. Fagan opines it will likely be part of the renegotiation of CUSMA, which is set to begin in less than a year.
“[However, that] is not helpful for the people being impacted right now,” he says.
“I encourage my American customers and even Canadians to speak to your local politicians. Tell them that you’re not happy about this,” says Monteiro.
“Do something for small businesses. Do something for yourselves – because otherwise we’re not going to be able to exist. All the costs are already so high that I don’t know how long we can last.”
