The Trump administration on Friday officially ruled out a loophole that allowed American shoppers to buy cheap items from China without paying tariffs. The move will help manufacturers struggling to compete with the waves of low-cost Chinese products, but prices for Americans shop online are increasing.
A loophole called the De Minimis rule allowed products up to $800 to avoid customs duties and other deficits as long as they were shipped directly to US consumers or small businesses. As a result, there was a surge in packages that were individually addressed to the US, many shipped in air and ordered from rapidly growing e-commerce platforms such as Shein and Temu.
In recent years, this loophole has been used to introduce products to the US without facing tariffs. After President Trump placed a mission on Chinese goods during his first term, businesses used exemptions to bypass these tariffs and continued to sell the products to the United States at a cheaper price. The use of loopholes increased in Trump's second term, struggling Chinese goods with a minimum tariff of 145%.
US Customs and Border Protection processed a billion such packages in 2023, with an average of $54.
At a cabinet meeting at the White House on Wednesday, Trump called the loophole “fraud.”
“It's a big scam that's really happening with small businesses for our country,” he said. “And we're done, we've finished it.”
Trump's decision was partially related to concerns about the use of fentanyl loopholes as a conduit for the United States.
The exemption allowed businesses to ship cheap items to submit less information to customs officials than other standard shipments. The administration said drug traffickers are “utilizing” the loophole by sending precursor chemicals and other materials used to manufacture fentanyl to the United States without providing shipping.
The increased use of loopholes has also threatened US jobs in warehouses and logistics. Major American retailers have encouraged more products to be shipped directly from China to consumers' doorsteps, avoiding large cargo subject to customs duties, and have been distributed through US warehouses and delivery networks.
Kim Glass, chairman of the National Council of Textile Organizations, who represented American textile manufacturers and fought to eliminate loopholes, said it “devastated the US textile industry.” For years, Glass said safe and illegal products that were not tax-free in the US market were permitted. More than half of all minimum shipments that included value included textile and apparel products, she said.
“This tariff loophole grants China access to a nearly one-sided and privileged US market at the expense of American manufacturers and US jobs,” she said.
But opponents ending the exemption complained that the move would significantly raise prices for American consumers, build businesses around loopholes, and slow down trade flows between the countries. The change is expected to weigh airlines such as FedEx and UPS and civil airlines that have stable business flying small goods to the US around the world.
The changes that apply to freight from mainland China and Hong Kong came into effect at 12:01am on Friday. They could have sowed pain and confusion not only for small retailers but also for consumers.
Temu recently launched a list of “import fees” on the site, but Shein's website tells shoppers that tariffs are “included in the price they pay.”
Gabriel Wildau, Chinese analyst at advisory firm Teneo, said the change would “take a sip from China's exports” and “forced online retailers to dramatically increase prices, as the main selling point is dramatically cheaper.”
“It's a price shock for price-sensitive US consumers who really enjoyed access to cheap products,” he said.
The Trump administration has also pledged to eliminate loopholes for shipping from other countries, but said it will wait until the government understands how to handle how to collect fees from such packages. U.S. Customs officials are already under strain due to increased enforcement of immigration rules and a significant increase in global tariffs.
After temporarily turning off the exception to China's DE Minimas in early February, the administration realized that the sudden change was an overwhelming shipping channel, including postal services. Trump then reversed the order and gave his advisors more time to establish a system that could accommodate the change.
The De Minimis exception was created in the 1930s to facilitate the work of customs officials who had to collect customs duties when income was lower than the cost of collecting duties. Congress raised the threshold for the DE Minimis package to $5 in 1978, $200 in 1993 and $800 in 2016.
In recent years, pressure has increased to eliminate loopholes. Lawmakers are considering legislation to reform the de minimis rules, and the Biden administration last year proposed changes to narrow the exceptions for China.
One potential issue with current rules is that goods moving through the post office appear to create inconsistencies that are subject to lower tariffs than goods moving through the civil airline.
Products coming to the US from China via civil airlines such as DHL and FedEx are subject to at least 145% tariffs. For example, add a $14.50 job to a $10 T-shirt. However, shipping coming through the post office faces either a 120% tariff on the value of the item or a fee of $100 per package, which will increase to $200 in June.
It appears that shipments coming through civil airlines will also be subject to other obligations, such as the tariffs Trump imposed on China in his first term and the most favorable state obligations set by the World Trade Organization. However, shipping through postal services is not the case.
Additionally, it appears that postal services are facing less scrutiny about collecting customs duties on goods shipped from China to other countries and subsequently gathering them in the US through foreign postal services.
For now, the US still offers minimal exceptions to countries other than China. However, starting Friday, products made in China are not eligible for De Minimis, even if they were routed through other countries before coming to the US. Civil airlines such as UPS and FedEx should gather information about the origin of the product. Therefore, you must pay customs duties on profits made in China, for example, shipped to the US via Canada.
However, postal services are not legally necessary to gather information about where the product is originating from, nor is it a foreign postal service. That could lead to an increase in schemes that attempt to bypass China's tariffs using post offices.
Peter Evis and Julie Creswell contributed the report.
