Cheaper goods from China are set to become a lot more expensive for U.S. consumers with the May 2 expiration of a loophole that formerly allowed lower cost packages to enter the country duty-free.
Ultra-low cost retailers like Shein and Temu are among the major players that until Friday relied on the loophole that allowed them to ship low-value parcels to the U.S. tax-free, allowing them to undercut U.S.-based sellers. American shoppers relied on the de minimis loophole, too, for bargain-basement prices that couldn’t be matched for goods made in the U.S.
With the end of the loophole, which exempted packages worth $800 from import levies, many goods from China and other countries will no longer be as low-priced as they once were. Trade experts also note that to comply with the law, importers and U.S. Customs and Border Protection (CBP) now face a new administrative challenge: the burden of inspecting millions of additional packages daily. That could mean substantial delays in shipments, experts note.
What is the de minimis loophole?
The provision was introduced in 1938 as Section 321 of the Tariff Act of 1930. It was designed to facilitate trade by eliminating the administrative burden of collecting negligible duties on low-value goods at a high cost to the government.
From 2018 to 2023, the value of low-value e-commerce exports from China ballooned from $5.3 billion to $66 billion, according to a February report from the Congressional Research Service.
The 1938 provision has been the “primary path” for Chinese exports to enter the U.S. market, the report notes.
Why did Trump eliminate the de minimis exemption?
President Trump in February said he would eliminate the loophole because he didn’t believe China was taking sufficient action to stem the flow of fentanyl into the U.S.
Mr. Trump in April signed an executive order eliminating the duty-free treatment for low-value packages from China and Hong Kong, effective May 2. As of Friday, packages that would have qualified for exemption under the de minimis provision will “be subject to all applicable duties,” the executive order states.
On Wednesday, Mr. Trump called the de minimis exemption “a big scam going on against our country, against really small businesses.”
“We put an end to it,” he said.
Goods from China are subject to new tariffs of up to 145%, while Beijing has retaliated with tariffs of 125% on goods from the U.S.
What does the end of the exemption mean for consumers?
Retailers are already tacking on hefty tariff surcharges to customers’ orders, leading to sticker shock for some U.S. shoppers who had long relied on China for cheap imported goods.
“The way we shop online will never be the same,” Ram Ben Tzion, CEO of Publican, a company that authenticates shipment documentation, told CBS MoneyWatch.
Specifically, “everything will take more time, cost more money, and everything that’s price-sensitive won’t be available,” he said.
The rise of trade between the U.S. and China allowed for a much greater variety of goods to enter U.S. markets. But the end of the loophole will lead to a “much diminished market,” said Mary Lovely, an international trade expert and senior fellow at the Peterson Institute for International Economics.
If prices of Chinese goods rise, there will be less demand, and sellers could decide to import fewer goods.
“You’ll see much diminished market and at some point it won’t be worth it to import to a small market,” so you’ll see products disappearing, Lovely said.
Could the new rule cause delays?
Requiring millions more packages to be inspected daily will create a challenge for CBP, experts noted.
“It will be an administrative nightmare, so you will see a lot of delays,” Ryan Young, a trade policy expert at the Competitive Enterprise Institute told CBS MoneyWatch.
It’s unclear if the government has enough CBP agents to efficiently inspect packages and enforce policies, experts told CBS MoneyWatch.
“As these adjustments are made, a key question remains, which is the ability of CBP to effectively regulate and enforce these measures,” Ben Tzion said. “As of today. CBP does not have that ability.”
“Without personnel, you’ll have backlogs and pile ups and U.S. customs might have to get more warehousing space,” Young added.
Who might benefit?
Companies that sell goods made in the U.S. could face less competition as previously cheap China-made goods rise to new price highs.
“Consumers could become more wary of foreign brands to avoid paying hefty prices,” Ines Durand, a retail strategist at Similarwab, a web analytics company.
Larger corporations with bigger profit margins, or more diversified businesses, will likely fare better than smaller retailers that operate on thin profit margins, making it difficult to re-jigger supply chains.
The consumer won’t emerge unscathed.
“The rollback of the de minimis exemption for tariffed goods is poised to hit consumers’ wallets,” PwC consumer markets industry leader Ali Furman told CBS MoneyWatch.
She expects to see consumers start “trading down” by swapping name brands for store labels, or even turning to resale platforms to stretch budgets.
