On Wednesday, President Trump ordered the closing of a loophole that allows retailers to send clothing and other items directly from China to American shoppers without paying tariffs.
The loophole known as the De Minimis exemption is currently applicable to products under $800. Such items are permitted to enter free US duties. Trump's order, which takes effect on May 2, removes the exemption from packages from China, the biggest source of its biggest shipments. Items purchased and shipped this way will also have much less customs documentation.
By ending the exemption, customs and border security will collect customs revenue for shipments under $800. Trump also said his orders would help prevent drug smuggling. He and others argue that fentanyl and its precursor components can sometimes be shipped to the United States as minimal shipments.
Chinese shippers “conceal illegal substances and hide the true content of the cargo sent to the US through deceptive shipping practices,” Trump's order said.
Members of both parties are calling for minimal provisional reforms.
Linda Sanchez, a California Democrat who introduced the law to end the exemption, said Trump's orders have not been progressing well and need to be applied to all trade. “Otherwise, we will play the Whac-a-Mole game as bad actors and fentanyl smugglers will simply move operations to other countries to continue exploiting loopholes,” she said in a statement.
“For a long time, this customs loophole has helped foreign exporters flood our market with cheap goods and drug traffickers move fentanyl past our borders.
The National Textile Organization Council, a trading group representing US manufacturers, welcomed Trump's move. The group said in a statement it is pushing to end loopholes in all imports, not just those sent from China and Hong Kong.
But Trump's order will likely boost American consumer costs, some trade experts said. Research shows that elimination of this provision costs Americans between $11 billion and $13 billion, and those high costs disproportionately hurt low-income and minority households.
“This will probably be pretty unpopular with many Americans,” says Clark Packard, a researcher at Cato Institute, a research organization that generally supports free trade.
Packard questioned whether closing the loophole would help drug detection efforts, and said customs officials were already screening packages in the country that contain minimal shipping.
“Luffing more paperwork into the customs process will likely undermine the CBP's ability to emit illegal drug traffic across borders,” Packard said.
Asked if they were ready to process and check more packages, Hilton Beckham of Customs Border Protection said, “Our automation system has been fully updated and capture, assess and manage all new obligations, and clear guidance is provided to support unified enforcement across the country.”
Shein, a first fashion retailer who sends most products directly from China under its regulations, has become extremely popular in recent years. Sheng Lu, a professor of apparel business at the University of Delaware, said the company relies on factories in China, which can produce a wide range of items in small quantities. “There is no realistic alternative to making their products,” he said.
Shein and Temu, who also rely on Chinese vendors, diversified by working with more American sellers and opening warehouses in the US. The company did not immediately respond to requests for comment.
“This is never going to kill them,” said Aaron Rubin, CEO of warehouse management software company Shiphero. “This just changes the business model.”
Shares of PDD Holdings, which owns Temu, fell around 5% on Thursday.
However, small and medium-sized US retailers relying on the Chinese product De Minimis regulations are poised to be hit harder, Professor Lu said. He said the extra costs must be covered, and if customers don't want to pay a higher price or deal with delivery delays, it could threaten the survival of small businesses.
Trump ordered the exemption to end in February, but within days he revived it. Logistics experts said the short closure was caused by a pile of packages at the border.
Trump said he was informed that he had a system in place to collect tariffs with minimal packages. He said he asked Commerce Secretary Howard Lutnick to report on the impact of the 90-day order.
