NEW YORK (AP) — Starting Friday, consumers should brace for increased prices and delivery delays as the Trump administration eliminates the tax exemption for low-value imports.
The end of the De Minimis rule, which enabled around 4 million low-value shipments to enter the US daily, has prompted companies—primarily from China—to rethink their strategies for maintaining low costs.
Contrary to popular belief, some entities may actually benefit from this repeal. For instance, US manufacturers may find relief from the competition posed by cheaper imports from China, leading to improved sales prospects.
This change affects products from mainland China and Hong Kong, in addition to President Donald Trump’s new tariffs totaling 145% on Chinese goods. In retaliation, Beijing has imposed 125% tariffs on US products, intensifying the ongoing trade war between the world’s two largest economies. Sellers are now facing cautious consumers.
On Wednesday, Trump described the De Minimis exemption as “a big scam happening against our country, against really small businesses.”
“We’re done with it,” he stated.
What are the De Minimis rules?
Established in 1938, the De Minimis exception seeks to encourage the flow of small packages valued under $5, approximately $109 in today’s dollars. The threshold increased to $800 in 2016, as the rapid rise of cross-border e-commerce has challenged the original intent of customs regulations, particularly driven by China.
According to a report from the Congressional Research Service, there was a significant surge from $5.3 billion in imports in 2018 to $66 billion in 2023, with the US market being a primary destination source.
Last year, former President Joe Biden proposed a regulation preventing foreign companies from dodging tariffs simply by declaring goods to be worth less than $800. Trump attempted to eliminate the exemption in February, but his initial order was revoked shortly after, as the US was unprepared to manage and collect tariffs on the flood of incoming packages.
What does this mean for shoppers?
Consumers will see heightened prices and delivery delays due to a more complex customs process, which will involve declarations and duty payments.
Companies can either incorporate customs duties into their final prices or list them separately, akin to sales tax. For example, Temu, owned by Chinese e-commerce giant PDD Holdings, states current “import fees.” Reportedly, this has doubled many prices. (Retailers also offer a “local warehouse” option, where some products ship domestically to bypass import fees.)
Meanwhile, Shein, which is currently based in Singapore, displays a checkout message stating, “Taxes are included in the price you pay. No additional fees are required upon delivery.”
Amazon has announced no plans to display customs costs alongside product prices, despite reports that e-commerce giants have swiftly introduced new import fees, leading to speculation about a contentious response from the White House regarding these changes.
What about sellers and shipping companies?
Parcel carriers will face the added responsibility of collecting duties, and the documentation required to comply with the new regulations could result in price hikes and delivery disruptions, according to Lamb Ben Zion, a public review platform spokesperson.
Major logistics firms like UPS and FedEx assert they are equipped to collect duties for international shipments in accordance with local laws, including the new US regulations.
Commercial entities will collect a 145% customs duty based on declared values. The US Postal Service has the option to levy a 120% tariff on low-value packages or a flat charge of $100, expected to rise to $200 on June 1st.
The US Customs and Border Protection has stated it is “prepared to fully implement the measures to collect all revenues owed on these shipments by May 2, 2025.”
However, experts raise concerns that a spike in workload could pose significant challenges.
According to CBP, over 70% of the 216 million packages entering the US in January and February originated from China.
What is the impact on businesses?
Companies that relied on the De Minimis exemption will need to adjust accordingly.
John Curry, CEO of Arizona-based swimwear company Hapari International, transitioned to minimal shipping about six months ago to enhance cash flow, speed up delivery, and ultimately remove US-based warehouses. His firm produces items in China and sells directly to US customers via its online platform.
Curry plans to maintain this path and add one parcel (one shipment) while awaiting a more sustainable resolution between the US and China.
“Neither nation can thrive under these conditions, so we require a solution,” Curry remarked.
Izzy Rosenzweig, founder and CEO of Logistic Company Portless, assists companies like Hapari in leveraging De Minimis exemptions for shipments from Chinese warehouses. He notes that US businesses are likely to remain in China for the time being due to competitive manufacturing bases and supply chains, albeit with expected price increases.
While companies with robust profit margins may continue sourcing from China, entities operating with minimal profit margins are likely to “go local” and establish more US-based warehouses to account for the tariff costs.
Who stands to benefit?
The trade group representing flag manufacturers and bicycle dealers anticipates gaining from the cessation of the mandatory exemption.
For instance, in written comments to the US Trade Representative Portal, the American Flag Manufacturers Association stated that its members faced a flood of imports of American flags, primarily from China, which were sold at lower prices, harming their competitiveness. The organization reported a 25% to 35% drop in the sales of American-made flags last year.
Larry Severini, CEO of Embroidery Solutions Manufacturing LLC, which produces US flags through its brand Starfield, was compelled to shut down one of its two facilities in South Carolina due to intense competition from inexpensive imports. He noted a 20% decline in sales since 2021 due to the De Minimis exemption.
“We need to impose a duty to level the playing field for fairness,” Severini commented.
Heather Mason from the National Bike Dealers’ Association mentioned that consumers are checking out $2,000 bikes from reputable brands like Trek while also considering $1,200 options from less credible sources.
“Reliable brands adhere to stringent safety, labor, and quality standards,” she expressed in an email to the Associated Press. “The De Minimis rule allowed unscrupulous entities to sidestep these regulations.”
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Tan reported from Washington.
Source: apnews.com