Congress raised the threshold for imports and opened the door to the American consumer market nearly a decade ago to enter the US from $200 to $800.
Chinese companies rushed to the ground. First on platforms like eBay and Amazon, then on apps like Shein and Temu, exporters poured products from China's vast manufacturing supply chain straight into the US gateway.
This single policy change in 2016 helped to change economic ties between the two countries.
The US has been receiving factory goods from China for decades, and China's manufacturing efficiency loads the supply chain of American companies, but an expanded, tariff-free loophole has made American shoppers hooked on buying exercise clothes and home gadgets online at rocky prices. And in China, millions have found works in factories that sell products in the e-commerce market. Not only did China itself discover Shane, Tem and Tiktok, but also Amazon and Walmart.
This transaction was swelling. Last year, around 4 million packages entered the United States per day, with no customs inspections or obligations paid.
It changed on Friday, with the latest measures in place to unravel trade between the two biggest economies in the world in effect. Most packages in mainland China and Hong Kong are subject to customs duties, even if they are worth less than $800.
People from both countries are already feeling a change. American shoppers look at high prices when checking out on their mobile phones, and Chinese exporters are rushing to find buyers outside the US.
Several factories in southern China, where much of the manufacturing industry is at the heart of it, have been shutting down since the beginning of April, raising concerns that workers will be shutting down.
Zhang Yikui, who sews clothing sold on Amazon with Shayne at a factory in Guangzhou, a hub of the Chinese clothing industry, said his factory was making 100,000 pieces a month. Orders are currently down to around 60,000 people, Chang said Thursday. He and about 40 colleagues were surrounded by a pile of shane bags, sewing denim dresses.
It was decided that Mr. Chan would find a buyer. “People from other countries still need to dress,” he said. “And in the US, they don't make anything like this at all.”
Even a lesser-known Chinese manufacturer has been able to build a successful business selling to Americans, and Eddie Chang, an e-commerce consultant in Hong Kong, previously assisted in running Walmart's China e-commerce business.
“Things have changed very quickly over the last few months,” he said.
Trade tensions pose major challenges to China's economic growth. This is mainly strengthened by exports. In April, President Trump ratcheted tariffs to 145% on more than half of China's exports to the US, but new export orders have sank to the lowest levels since the end of 2022, according to official data released this week.
Ting Lu, chief economist at Japanese bank Nomura, said in a memo to investors this week that nearly 6 million people in China could lose jobs in the short term due to tariffs and as many as 16 million jobs in the long term.
The Chinese government has struggled to separate the country from decades of dependence on real estate. The collapse of the real estate market, where most Chinese households built up wealth, driven a sharp drop in prices, and consumers consumed on spending.
China's cross-border e-commerce industry has thousands of factories as its lifelines, making it one of the few bright spots.
Founded over a decade ago, the rise of market platforms like Amazon and Shein coincided with the Chinese government's push to do more to reach overseas markets for small and medium-sized businesses.
The app worked like a funnel for a wide variety of products made in a factory in China. They have enabled Chinese companies to send packages directly to shoppers, allowing them to move inventory quickly as they buy shopping, allowing even small factories in China to become global business, says Moira Weigel, a professor at Harvard University, who writes a book on the online market.
This has made it even easier for Congress to think. This was to raise the tax-free limit to $800, which would increase consumers and small businesses' access to cheap goods from overseas, while other countries responded by opening up more American goods and promoting US exports. However, the United States remained an outlier among its major trading partners. China's threshold for tax-free imports is $7.
For almost a century, federal law carved cheap goods known as import imports from import taxes. The threshold, which lasted for decades, was raised to $5 in 1978 and $200 in 1993.
A bump to $800 has opened Floodgate, and China is De Minimis' largest exporter. In 2018, Chinese companies exported a single package of about $5 billion, with an average of $54. By 2023, that total had skyrocketed to $66 billion, according to data from Congressional Research Services.
Trade tensions and the end of the US tax-free policy threaten to lead this all to a halt.
Han Dong Hwan, founder of China's Labor Bulletin, which tracks protests over China's factory closures, warned that the impact of tariffs could be “a lot worse” than the country's workers' pandemic.
Some factories are turning their eyes to e-commerce platforms in Europe and Southeast Asia in search of new markets for their products. Chinese e-commerce consultants provide tutorials to help companies sell their products on eBay in Japan or Amazon in Brazil.
Other Chinese sellers have tried to stockpile US goods. Some purchased warehouse space from Amazon and Walmart.
The Chinese government responded by not only imposing high tariffs on US imports, but also by encouraging consumers to purchase products made in China. But if more people are unemployed, it can be difficult, says Qiu Dongxiao, dean of economics at Linnan University in Hong Kong.
“Even people who are working now don't know if they're going to work again tomorrow, so they're very cautious when spending money,” Qiu said.
Siyi Zhao contributed the report.
