The United States has publicly closed the “de minimis loophole,” a long-standing business provision that has given unusual e-commerce companies like Temu and SHEIN an unfair advantages in the competitive retail marketplace, in a major move intended to level the playing field for American retailers. With the intention of reducing illicit fentanyl inflows and addressing economic imbalances, President Donald Trump’s broader tariff crackdown targets Chinese imports.
What Are De Minimis Entries?
The de minimis rule, originating from legislation dating back to 1938, allows goods valued under$ 800 to be shipped directly to American consumers without incurring import duties, customs declarations, or extensive inspections. Initially introduced to reduce administrative burdens, the de minimis threshold was raised from$ 200 to$ 800 during President Barack Obama’s tenure, significantly facilitating a surge in small-value imports, particularly from e-commerce platforms.
One of the most generous de minimis thresholds in the world is in the United States. For comparison, the European Union caps its exemption at €150 ($ 156 ), Canada at CAD$ 20 for non-US shipments, and Australia at AUD$ 1, 000.
What Caused the De Minimis Loophole to Close?
The main factors in Trump’s administration’s suspension of the de minimis exemption for China, Canada, and Mexico were cited as the main ones by the administration. Two main factors influenced the choice:
1 ) Curbing Fentanyl Inflows
According to the Centers for Disease Control and Prevention ( CDC ), fentanyl is responsible for nearly 75, 000 overdose deaths in the United States in 2023. Chinese chemical suppliers reportedly abused the de minimis rule to import fentanyl precursors into the US, frequently moving them through Mexico to make illegal drugs. De minimis shipments were frequently subject to less rigorous checks, which allowed illegal substances to enter the country undiscovered, according to a Reuters investigation. By halting the exemption, the US aims to improve the quality of incoming shipment screening and stop the flow of these dangerous chemicals.
2 ) Targeting Chinese E-commerce Giants
Platforms like Temu for platforms like SHEIN and PDD Holdings have benefited from the de minimis method by sending high-value packages straight from China to US consumers without paying any tariffs. This competitive advantage has put pressure on American retailers, such as GAP and H&, M, who paid$ 700 million and$ 200 million respectively in import taxes in 2022, while competitors like Temu paid virtually nothing. These businesses are forced to pay tariffs by the de minimis route, leveling the playing field and safeguarding US businesses.
The Effects on US Retailers and Global Trade
The suspension will disrupt supply chains and cause more expensive e-commerce companies in China, who may pass these costs on to customers. However, the scope of the suspension remains limited to China, Canada, and Mexico, leaving other trade partners unaffected.
Traditional retailers are optimistic that this change will make the environment for all businesses to operate in accordance with the same set of regulations. Meanwhile, the move is expected to strain US-China trade relations further, as well as affect economic ties with Canada and Mexico.
Key Takeaways and Potential Loopholes
- Temporary Measure: Trump’s executive order does not call for a permanent suspension, meaning de minimis rules could be reinstated in the future.
- Selective Enforcement: Goods from countries other than China, Canada, and Mexico can still enter the US duty-free under de minimis rules.
- Trade Relations: The move is likely to have broader implications for global trade dynamics, particularly concerning US-China economic relations.
The new policy is anticipated to have profound effects on global e-commerce, forcing businesses like Temu and SHEIN to reevaluate their supply chains and pricing strategies while strengthening border security to deal with the ongoing opioid crisis.
