A Massive Trade Loophole Just Closed

More than 1.36 billion packages entered the US under the "de minimis" trade exemption last year, around 4 million a day or 43 per second, but that loophole for shipments worth under $800 has now closed. At 12:01am on Friday, Customs and Border Protection began collecting duties and tariffs on all parcel imports, regardless of value, the Guardian reports. The Trump administration ended the exemption for shipments from China and Hong Kong back in May, creating headaches for retailers like Temu.

• Background. The threshold for tax-free imports used to be $200, in line with most other countries, but it was raised to $800 in 2015, NPR reports. An explosion in online shopping followed, with de minimis imports rising almost tenfold between 2016 and last year, when they made up around 92% of all cargo shipments to the US, per CNBC.

• What it means for consumers. With shipments sent through express carrier like UPS of FedEx, the carrier will calculate the tariff based on the country and "the recipient may have to do very little," the New York Times reports. The situation is more complicated for goods sent through the post and many foreign postal agencies have halted shipments to the US while they work to determine new procedures to calculate and collect payments to submit to CBP. For six months, the postal agencies have the option of using a flat rate, ranging from $80 to $200 depending on President Trump's tariffs on the country of origin. People can still send "bona fide" gifts worth less than $100 under the new regulations.

• Disruption. Japan, India, and many European countries are among the countries that have suspended shipments to the US, NPR reports. The change will hit some businesses hard, including those that imported lower-value items and sold them through platforms like Etsy, reports the Times. Smaller exporters overseas will likewise suffer, though big companies like Temu are expected to weather the storm. "For shippers, this brings increased costs, complexity, and the need to adapt shipping setups to comply with new customs requirements," says Andrew Williams, CEO of DHL Express Americas. Li Chen, professor of manufacturing management at Cornell University, says it is "an operational nightmare because we are talking about small-value, but large-volume shipments."
• Bipartisan support. Lawmakers from both parties have criticized the exemption in the past. "The exemption of these goods from duties or taxes has undermined American businesses and workers and flooded our ports of entry with foreign-made products, making CBP's vital work screening these goods for security risks more difficult," then-Homeland Security Alejandro Majorkas said in the final days of the Biden administration, announcing that rules had been tightened. Critics also said that since customs paperwork didn't need to be filled out, the loophole allowed unsafe products to enter the US. In his executive order last month, Trump cited the "risks of evasion, deception, and illicit-drug importation."
• Lower-income Americans will be hit hardest. "Lower-income consumers tend to spend relatively more on shipments that enter through the de minimis channel, and those shipments tend to be relatively more from China," Amit Khandelwal, a professor of global affairs and economics at Yale University, tells the Guardian . "Since tariffs on China are high, that means ending de minimis will basically look like a regressive tax increase."